Treasury's Surprise Bond Buyback Sparks Market Volatility

The US Treasury's surprise decision to double its long-dated bond buybacks has sent shockwaves through financial markets. Long-dated US bond yields plummeted by as much as 10 basis points, their largest drop since October 2025. The dollar also tumbled, while gold and Bitcoin saw significant gains.

The move was seen as a response to the surge in US bond yields, which have been rising rapidly over the past few weeks. However, some analysts are skeptical about the effectiveness of this measure, noting that the numbers involved are small and the operation is temporary.

According to the minutes of the Federal Reserve's July 28-29 policy meeting, a growing number of officials are increasingly worried about the persistence of elevated price pressures and the inflation outlook. This suggests that the Fed may be shifting towards a more hawkish stance, with some members even favoring a 25-basis-point rate hike.

As a result of the Treasury's announcement, the uncertainty surrounding the FX carry trade has increased, particularly for the Japanese yen and Swiss franc. Short positions in these currencies are likely to be covered, which could lead to further volatility in the markets.