Treasury's Bond Buyback Blitz Weighs on US Dollar
The US Treasury has taken steps to defend bond yields by increasing long-term buybacks from $2 billion to $4 billion starting September 9. This move has led to a decline in Treasury yields, echoing Japan's currency intervention practices.
The dovish Federal Reserve is weakening the US dollar, contributing to its lowest level since May. The interest rate differential between the Fed and the Bank of Japan means the yen is being actively sold as a funding currency in carry trades, despite the fundamentals suggesting the dollar's fall against the yen is unjustified.
Treasury yields are influenced by factors beyond fiscal stimulus and budget deficits, including geopolitics and competition from artificial intelligence. Hyperscalers are issuing corporate bonds to finance AI-related projects, drawing money away from the US debt market and pushing up Treasury yields.