The US dollar is on shaky ground and set for a weekly loss, with a Bloomberg gauge of the greenback falling to a three-month low, as investors view the US Treasury's bond buyback strategy as a temporary fix that raises concerns about officials' interventionist approach. Treasury Secretary Scott Bessent announced that he might further increase government repurchases of Treasuries, a day after the department stated it would double the size of buybacks on longer-dated securities over the next quarter to curb rising yields. However, these actions have not halted the selloff in US Treasuries and have negatively impacted the dollar, as investors grow wary of the deteriorating fiscal situation and question the credibility of US institutions.
Analysts like Carol Kong, a currency strategist at Commonwealth Bank of Australia, highlight that the Treasury's long bond buybacks are an unconventional method to manage borrowing costs amidst high government debt, growing fiscal deficits, and policy uncertainty. She believes this could be another headwind for investor sentiment around US dollar assets, potentially encouraging more dollar hedging and diversification. Gerald Gan, chief investment officer at Reed Capital, views the dollar as the "biggest casualty," suggesting Bessent is deliberately trying to lower long-term real rates and tolerating a weaker dollar to support the economy.
The Treasury's move, which departed from its usual "regular and predictable" debt management, aims to ease borrowing costs that have surged to multi-year highs, with the 30-year US Treasury note yield rising to 5.2508% on Friday and the benchmark 10-year yield steadying at 4.7041% after an overnight increase of 4.5 basis points. Some market participants see this as a turning point, with Washington taking a more active role in managing borrowing costs, potentially weakening faith in the dollar and pushing investors towards alternatives. Audrey Childe-Freeman, chief FX strategist at Bloomberg Intelligence, views this as an attempt to suppress market pricing around US fiscal sustainability and the Federal Reserve's inflation-fighting credibility.
This intervention follows the US joining Japan in supporting the yen, leading some to believe policymakers are panicking. Amir Anvarzadeh, strategist at Asymmetric Advisors, suggests the dollar is a "sacrificial lamb" in the effort to stabilize yields. 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." While some, like Masahiko Loo at State Street Investment Management, see near-term dollar support from AI-driven inflows and higher oil prices, he also acknowledges that these measures reinforce a longer-run case for de-dollarization. Shoki Omori, Deutsche Bank AG's chief fixed income strategist for Japan, expects the yen, gold, and Swiss franc to be beneficiaries of this shift.
MUFG analysts Derek Halpenny and Abdul-Ahad Lockhart noted that the unscheduled expansion of long-end buybacks triggered the largest daily US dollar drop since March (excluding intervention episodes). They argue this move underscores concerns over US yield levels, could undermine confidence in US assets, and makes the dollar more vulnerable to downside risks even if yields are contained. The Treasury's announcement to at least double liquidity support buyback operations for 10- to 30-year bonds, from a maximum of $2 billion to at least $4 billion, effective September 9 to November 4, has further solidified these concerns.
