Bank of America strategist Michael Hartnett has warned that if the U.S. Treasury's plan to suppress long-term bond yields fails, the dollar could weaken and potentially trigger bearish bets on higher-risk assets ahead of the November midterm elections.

Hartnett stated that if Treasury Secretary Scott Bessent "cannot push the 30-year Treasury yield below 5%," the greenback may slide in the coming weeks, while markets could increase short positions in highly leveraged sectors, including AI hyperscale cloud providers and private credit. He added that financial stocks could also face selling pressure if the initiative proves ineffective.

The strategist and his team noted that the proposal to expand buybacks of longer-dated government debt amounts to a "quasi" quantitative easing program, marking the latest installment in a series of "Bessent put options" designed to address threats to U.S. government financing and artificial intelligence investment. "A policy panic to 'fix' the fixed income market should relieve further upward pressure on Treasury yields, but it won't genuinely push them lower," Hartnett wrote.

The BofA strategists indicated that their bull-bear indicator currently remains in "extremely bullish" territory. Citing EPFR data, they highlighted that funds focused on U.S. equities attracted nearly $29 billion in inflows during the week ending August 19, the largest amount in three weeks. Meanwhile, semiconductor funds recorded outflows for a third consecutive week, with cumulative redemptions reaching $6.3 billion.