The US dollar continued to remain under pressure in trade, falling to multi-week lows after the US Treasury doubled its debt buyback programme to help calm the bond market, sending yields sharply lower amid substantial market stress.
After closing the previous session with a modest gain, renewed selling dragged the US dollar to its lowest level since late May, with the greenback falling 0.80% against a basket of currencies to 98.4.
The bond market has remained under pressure lately, with yields spiking to multi-decade highs amid a worsening US fiscal situation and persistently high inflation, prompting investors to dump Treasuries as they demand higher yields amid growing economic risks.
To calm the markets, the US Treasury Department raised the maximum Treasury security buyback for the period through 4 November, targeting the sensitive longer-duration segment of the Treasury market.
Under the accelerated buyback programme, the Treasury, led by Secretary Scott Bessent, will target the 10- to 20-year and 20- to 30-year portions of the market, which have faced a buyers’ strike since late June.
The government will “at least double” the maximum size of its buyback operations, from $2 billion to “at least” $4 billion, according to an announcement from the department, CNBC reported.
The Treasury’s move signalled concern about the steady bond-market sell-off that had pushed 30-year yields to their highest level since 2007 amid mounting investor anxiety over the surging federal debt, the Iran war, a flood of corporate borrowing for artificial intelligence and inflation that has remained above the Federal Reserve’s target since 2021.
The move at least temporarily helped reverse that trend by fuelling a rally in longer-dated Treasuries, pulling down 30-year yields by about 8 basis points.
Yields rise when bond prices fall, and the sell-off matters because long-end sovereign yields act as an anchor for the pricing of nearly every other asset in financial markets, including mortgage rates.
Buyback adds pressure on dollar
The Treasury buyback announcement has added further pressure on the dollar, which has also been dragged down by speculation that the Fed is unlikely to start raising interest rates before December.
Traders are awaiting the release of the minutes from the latest Fed meeting later on Wednesday to gauge whether calls for further tightening gained traction and how officials assessed inflation risks. Markets now expect the Fed to hold policy steady in September and are no longer fully pricing in a rate increase by year-end, unlike just a week ago.
Meanwhile, the recent inflation readings have shown relatively low levels of overall price increases in June and July, but the annual inflation rate remains well above the Federal Reserve’s 2% target.
(With inputs from Bloomberg)
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
