US Treasury's Surprise Bond Buyback Boosts Precious Metals, Slows Dollar

The North American session on August 19th was marked by a surprise announcement from the US Treasury, which sent shockwaves through the markets. The Treasury announced that it would double the maximum size of its liquidity-support buyback operations for longer-dated nominal securities, from $2 billion to at least $4 billion per operation.

This move provided immediate support to the long end of the Treasury curve and had a ripple effect on other assets. Precious metals surged after the announcement, while the US dollar fell lower. The market impact was similar to quantitative easing, albeit not equivalent, as it eased financial conditions that had been tightening and limiting the inflation shock.

The FOMC minutes of the July meeting revealed a more hawkish internal debate among Fed participants. While most supported keeping rates unchanged, several favored a hike, arguing that higher rates could become necessary if inflation fails to fall. Some questioned whether financial conditions were sufficiently restrictive to bring inflation back to the Fed's 2% target.

The announcement also had an impact on other assets. The Canadian dollar rose to new highs after Trump's tariff TACO and the US Treasury's announcement, while the EIA weekly US crude oil inventories increased by +4.405M vs +0.200M expected.