Treasury Secretary Scott Bessent's decision to significantly increase purchases of outstanding 10- to 30-year bonds to curb surging US borrowing costs is drawing comparisons to Japan's market interventions and is widely seen by investors as a move that will weaken the dollar. This intervention marks a departure from the Treasury's long-standing "regular and predictable" approach to debt management, and some investors, like Gerald Gan of Reed Capital, believe Bessent is deliberately pushing down long-term real rates and signaling a tolerance for a weaker dollar to support the economy. This sentiment is reinforced by Washington's earlier move to join Japan in supporting the yen, suggesting a growing willingness to intervene in markets.
Market participants are concerned that efforts to engineer lower US yields will diminish the attractiveness of dollar-denominated debt compared to other global assets. Audrey Childe-Freeman of Bloomberg Intelligence views the move as potentially bearish for the dollar, suggesting it's an attempt to suppress market pricing around US fiscal sustainability. While the Bloomberg dollar gauge initially fell to a three-month low, some, like Amir Anvarzadeh of Asymmetric Advisors, argue the primary goal is yield stabilization, with the dollar becoming an unintended "sacrificial lamb." Andrew Canobi of Franklin Templeton adds that Bessent is effectively willing to "sacrifice a bit of dollar strength in order to keep term yields somewhat in check."
The expanded buyback plan, which involves doubling the maximum size of certain operations to at least $4 billion and potentially more, comes as long-term Treasury yields have surged to multi-year highs due to inflation worries and growing government debt. This has led to a policy dilemma: allow yields to rise and face higher borrowing costs, or suppress them and risk dollar weakness. The reaction in alternative assets, such as gold gaining over 3% and Bitcoin sharply advancing, highlights increased investor interest in alternatives to traditional government debt and fiat currencies. Deutsche Bank's George Saravelos even compared the potential impact to the Federal Reserve's Operation Twist in 2011-12.
Not all analysts anticipate an immediate threat to the dollar, with Masahiko Loo of State Street Investment Management noting near-term support from AI-driven inflows into US equities and higher oil prices. However, many, including Shoki Omori of Deutsche Bank AG, expect the yen to be the biggest beneficiary over the next three to six months, as these US policy shifts remove pressures that had kept the yen weak. Omori also favors gold, the Swiss franc, and the euro as alternatives, succinctly stating, "The Treasury can buy back its bonds; it cannot buy back the dollar."
