The U.S. decision this week to expand Treasury buybacks has stirred market volatility and prompted comparisons with Japan’s past efforts to suppress borrowing costs, a policy approach that was followed by prolonged yen weakness. The U.S. Treasury unexpectedly said midweek that it would double the size of its buybacks for longer-dated government bonds.
Robin Brooks, a senior fellow at Brookings, called the move the clearest sign so far that the United States may be heading down a path similar to Japan’s, toward currency depreciation. He said the government was "playing with fire." The dollar is now sitting at a three-month low and is on track for its worst weekly performance of the month.
Markets reacted unevenly. Treasuries initially rose after the announcement, then gave back those gains. Gold and other precious metals moved higher. Steven Barrow, head of G10 strategy at Standard Chartered, said using buybacks to push down bond yields would add more pressure on the dollar while doing little to address the core driver behind higher yields: the fiscal deficit.
The U.S. move this week to expand Treasury buybacks rattled markets and drew comparisons with Japan’s past policy playbook, where efforts to keep borrowing costs down were followed by a long stretch of yen weakness.
The dollar is now at a three-month low and is on course for its worst weekly showing of the month.
U.S. Treasury doubles buybacks for longer-dated debt
The Treasury unexpectedly announced in the middle of the week that it would double the size of its buybacks for longer-dated government bonds.
Robin Brooks, a senior fellow at Brookings, said the move was the "clearest sign" so far that the United States is following Japan toward currency depreciation. He also said the U.S. government was "playing with fire."
Mixed reaction across markets
Treasuries rose briefly after the announcement, but later gave back those gains. Gold and other precious metals moved higher.
Steven Barrow, Standard Chartered’s head of G10 strategy, said using buybacks to suppress bond yields would only put more pressure on the dollar and would not solve the underlying force driving yields higher, namely the fiscal deficit.
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