The U.S. Dollar Index (DXY) dropped to 98.723, its lowest level since mid-May, after the Treasury Department revealed plans to significantly increase its buyback operations for longer-dated government securities. This move aimed to calm a bond market selloff that had pushed long-end yields to nearly 20-year highs. The dollar's decline was swift, reflecting the market's reaction to easing pressure on the bond market and reduced appeal for U.S. assets.
The Treasury's decision involves doubling the maximum size of its liquidity-support buybacks for 10-to-20-year and 20-to-30-year maturity sectors from $2 billion to at least $4 billion per operation. This policy change is effective from September 9 to November 4. Following the announcement, long-dated Treasury yields plummeted, with the benchmark 10-year yield falling over 5 basis points to 4.64% and the 30-year yield dropping nearly 9 basis points to 5.19%. This contrasts with the 30-year yield reaching 5.337% earlier in the week, its highest since 2007.
Analysts view the Treasury's action as a positive for risk sentiment and a negative for the dollar. Chris Turner, global head of markets at ING, suggested it reduces a "left-field risk" for the market. Juan Perez, director of trading at Monex USA, noted that the expansionary monetary policy, coupled with other dollar-negative themes like the Federal Reserve's unclear stance and Middle East tensions, is contributing to the dollar's depreciation. However, some economists, like RSM's Joe Brusuelas and Mohamed El-Erian, expressed skepticism, suggesting the move might be more politically motivated or a form of "yield curve control" rather than a fundamental solution to financing challenges and inflation control.
