Treasury Secretary Scott Bessent's decision to significantly increase purchases of outstanding 10- to 30-year bonds to stem rising US borrowing costs has led many investors to believe the dollar will be the primary casualty. This move, which doubles the planned buybacks, marks a departure from the Treasury's traditional "regular and predictable" debt management approach. The intervention comes as long-term Treasury yields had surged to levels last seen in 2007 due to a growing debt burden, inflation worries, and increased corporate borrowing.
Market participants view Bessent's action as Washington taking a more active role in managing borrowing costs, potentially signaling a tolerance for a weaker dollar to support the economy. Gerald Gan of Reed Capital stated that the dollar is the "biggest casualty," suggesting Bessent is deliberately trying to push down long-term real rates. Similarly, Andrew Canobi of Franklin Templeton noted that Bessent is "effectively saying we're prepared to sacrifice a bit of dollar strength in order to keep term yields somewhat in check."
Following the announcement, a Bloomberg gauge of the greenback fell to a three-month low, with currencies like the yen, Swiss franc, and New Zealand dollar gaining against it. Audrey Childe-Freeman of Bloomberg Intelligence described the move as potentially bearish, with traders likely interpreting it as an attempt to suppress market pricing around US fiscal sustainability. While some, like Masahiko Loo of State Street Investment Management, see near-term support for the dollar from AI-driven inflows and higher oil prices, others anticipate further weakening.
Shoki Omori, Deutsche Bank AG's chief fixed income strategist for Japan, expects the yen to be the biggest beneficiary over the next three to six months. He believes the recent US actions remove factors that have kept the yen weak, such as Japan's need to sell Treasuries for intervention and the pressure from rising US long-term yields. Omori also favors gold, the Swiss franc, and the euro as alternatives to the dollar, highlighting that "The Treasury can buy back its bonds; it cannot buy back the dollar."
