Treasury's Bond Buyback Surge Weighs on Dollar as Rates Rise

The U.S. Treasury's bond buyback program has been increased to $4 billion, down from $2 billion, and this move has pushed down U.S. Treasury yields. The market has recognized that a 5.3% yield on the 30-year U.S. Treasury note represents the U.S. Treasury's 'pain threshold', similar to how Japan views 164 as a critical level for USD/JPY.

The substantial interest rate differential between the Federal Reserve and the Bank of Japan has led to the yen being widely sold off as a funding currency in carry trades. The Japanese government can only intervene opportunistically with capital to curb bullish momentum pushing up USD/JPY, while the U.S. Treasury is also forced to undertake operations contrary to fundamentals.

The rise in U.S. Treasury yields is not solely driven by fiscal stimulus and expanding fiscal deficits; geopolitical factors and competition spurred by artificial intelligence are also influencing yields. Hyperscale technology companies have issued large volumes of corporate bonds to raise capital for AI projects, diverting funds that would otherwise have flowed into the U.S. Treasury market.