My first pass at a CTA.
If a producer wants to buy its input early, to prevent shortages, it will pay a CTA to insure against future price drops. The CTA bets a future price hike to compensate. It promises to sell some in the future at current price. The insured protected against a sudden future price drop. As if the CTA took some of the shipped commodity and held the rights to sell it back in the future.
It is really an economy of scale problem. The purchaser is buying in a quanta too large, and wants to make change. The insurer is looking across all markets and balancing supply/demand on the margin. But the insurer needs to take losses and gains to be market neutral, and so buys Treasuries to smooth out the business with earnings.
There is another insurance market, the FX swap market. But the two are almost the same since the dollar value and oil prices are almost prefect inversions, at the moment. The insurers, in essence, are not writing more contract until the Ten year yield reliably stays above 1.03%, or there abouts. They both lost money as the dollar plunged farther than expected.
The Fed is stuck, the insurance business drives foreign debt sales. Biden is likely stuck with the ten year about 1.05-1.10 for a while. That is a 30% rise in expected interest payments. That means more taxes to be passed down the line, one way or the other. It is a knife edge situation, the maneuvering room between seigniorage and market rates is narrow, the feed back loop well hedged. We get the tax urgency and the battles are long and arduous.
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