The dollar weakened against the euro and other major currencies on Friday as Treasury Secretary Scott Bessent's push to calm the bond market lost its grip. Long-dated yields snapped back within a day of Wednesday's buyback announcement, and Bessent now faces a narrower set of options to steady the debt market.
The dollar traded lower against the euro, yen and pound by roughly 0.20% to 0.30% on Friday, with steeper declines against the Australian and New Zealand dollars. The move came as bond-market stress persisted despite Washington's attempts to talk yields lower.
Buyback relief fades fast
The Treasury said Wednesday it would at least double its bond buybacks, sending yields tumbling as investors welcomed a backstop for longer-maturity government bonds. But yields at the long end quickly rose again Thursday as skepticism set in. The 30-year yield had surged to 5.337% on Tuesday, its highest since June 2007, then fell to a low of 5.178% Thursday before moving back higher to 5.24% by Friday morning.
Bessent then appeared on CNBC to insist the intervention targeted liquidity, not yield-curve control. According to CNBC: "We have a big toolkit" the Treasury chief said, adding that yields don't reflect underlying fundamentals. Yet the appearance had minimal impact on the bond market, in the assessment of Evercore ISI's Krishna Guha, and yields resumed climbing.
What's left in the toolkit
Guha likened the buyback plan to a weak form of Operation Twist, noting it could backfire if seen as signaling concern about funding costs. Bessent could instead go bigger on buybacks, shrink longer-dated auctions in favor of bills, or lean on what markets are already calling the Bessent put — using the tools unpredictably to catch short sellers off guard. None of the options is guaranteed to work, and each carries its own risk.
The pressure isn't only domestic. UBS strategist Frederick Mellors, writing alongside Global Wealth Management CIO Mark Haefele, said the Treasury's intervention buys time rather than a solution, pointing to central bank rate-hike repricing and heavy tech-sector debt issuance. Germany's 10-year Bund yield climbed to 3.254% Friday, remaining near its highest level since 2011, adding to the sense that the sell-off in government debt is global, not just American.
Fiscal strain underpins the move
U.S. gross national debt has passed $40 trillion for the first time, and the deficit-to-GDP ratio sits near 6%, about triple its post-World War II average. Bessent said he and OMB head Russell Vought will meet soon on fiscal consolidation, even as tax cuts are sought and Congress shows few signs of spending restraint.
Sources: CNBC, Investing.com, InvestingLive
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