US Treasury Doubles Bond Buybacks Amid Rising Inflation Concerns

The US Treasury announced it would double its planned bond buybacks in the coming months, leading to a sharp fall in long-dated US bond yields and the dollar. This move comes as a response to rising market-based rates and inflation concerns.

According to the minutes of the Federal Reserve's July 28-29 policy meeting, several officials favored raising interest rates by 25 basis points at the time, and many believed borrowing costs would need to rise if inflation doesn't come back to the Fed's target rate. This shift in the center of gravity on the FOMC suggests a more hawkish direction.

The Treasury's bond buyback announcement caused uncertainty around the FX carry trade, particularly with regards to the Japanese yen and Swiss franc. Short positions had already been affected by recent US-Japan intervention, leading to further short covering. The Swiss franc surged nearly 2% against the dollar on Wednesday, its biggest rise since January.

The impact of these moves on financial markets is still uncertain, but they do suggest a growing concern about inflation and interest rates. As the Fed continues to navigate these issues, the Treasury's actions may be seen as an attempt to mitigate their effects.