This paper investigates the mechanism behind the 2nd harmonic interaction of a transformer connected Voltage-Source Converter (VSC) under saturation conditions. The detailed small-signal models of a saturated transformer and a VSC are derived considering their nonlinear behavior. It is revealed that the frequency coupling from the saturated transformer and the PLL in the VSC may form a positive feedback loop and give rise to a 2nd harmonic amplification. The harmonic amplification gain is established herein, which provides an accurate assessment of the 2nd harmonic interaction. This theoretical analysis is verified by a power hardware-in-the-loop laboratory experiment.