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Dollar falls after Treasury expands long-end bond buybacks
MUFG says the unscheduled increase to at least USD 4bn in 10-year and longer buybacks could signal lower yields, adding downside risk to the US dollar even if rates are contained.
MUFG analysts Derek Halpenny and Abdul-Ahad Lockhart said an unscheduled expansion of long-end US Treasury buybacks drove the biggest one day drop in the US dollar since March, excluding prior episodes tied to intervention.
They noted the Treasury’s announcement could more than double the original plan, raising buybacks from a maximum of USD 2bn to at least USD 4bn, with purchases focused on 10 year and longer maturities.
MUFG said the move underscores growing concern about US yield levels, which could weaken confidence in US assets and leave the dollar more vulnerable to downside even if yields end up being contained.
The analysts added that next week’s Jackson Hole speech by Fed Chair Warsh has become more important for rate expectations, and they also pointed to the possibility that inflation continuing to subside could further affect markets and weigh on the dollar.