U.S. Treasury Secretary Scott Bessent said overnight he may further increase the government’s repurchases of Treasuries, a day after the department announced it would double the size of buybacks on longer-dated securities over the next quarter in an attempt to stem a sharp rise in yields.
Bessent also said he and White House budget director Russell Vought will be embarking on a new fiscal consolidation effort directed by U.S. President Donald Trump.
The moves, however, did little to stem the selloff in U.S. Treasuries and weighed on the dollar, as investors grew wary of the deteriorating fiscal picture and worries about the credibility of U.S. institutions resurfaced.
Against a weaker dollar, the euro was perched near a three-month high and last bought $1.1685, on track for a weekly rise of 1%.
Sterling flirted with a six-month peak and edged 0.08% higher to $1.3643, taking its gains for the week thus far to 0.8%.
The greenback was meanwhile on track for a weekly fall of more than 0.8% and was last at 98.82, languishing near a three-month low against a basket of six other currencies.”The Treasury’s long bond buybacks are basically another example of the U.S. government using unconventional tools to manage borrowing costs, and this comes against the backdrop of high government debt, growing fiscal deficits and policy uncertainty,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“So I can understand why people are concerned about the operation being another headwind to investor sentiment around U.S. dollar assets. Potentially we could see such an action encourage more dollar hedging and diversification.”
In other currencies, the Australian dollar advanced 0.13% to $0.7123, while the New Zealand dollar added 0.23% to $0.5957 and was headed for a weekly rise of more than 1%.
The yen slipped 0.05% to 159.12 per dollar, continuing to come under pressure from wide U.S.-Japan rate differentials.
Data on Friday showed Japan’s core consumer inflation accelerated in July from a year earlier, bolstering the case for a rate hike from the central bank.
JUST A BAND-AID
The yield on the 30-year U.S. Treasury note was up about 1.4 basis points to 5.2508% on Friday, while the benchmark 10-year yield steadied at 4.7041% after rising 4.5 bps overnight, as initial relief from Bessent’s bond buyback plan faded.
“Our scepticism is not that policymakers lack the tools to influence the long end. History shows they do, at least temporarily. Our scepticism is that today’s problem appears increasingly fiscal rather than technical,” said Goldman Sachs strategist Vitali Meschoulam in a client note.
“The (developed market) examples tell us that term premia can be compressed. The (emerging market) examples tell us that once markets focus on sovereign financing dynamics, yield suppression becomes progressively less effective.”
Concerns over the growing U.S. debt pile, which has topped $40 trillion, also drove some investors towards alternatives such as gold and bitcoin, which have benefitted in the past from efforts to diversify away from U.S. assets.
Bitcoin scaled an over two-month high on Friday and last traded 1.6% higher at $73,823.43, on track for a 17% weekly rise, which would mark its largest gain in 2-1/2 years.
Spot gold was similarly headed for a more than 3% jump this week. [GOL/]
