"More avenues opening for US Dollar weakness ahead": MUFG on why Treasury buyback could backfire
The US Dollar (USD) has extended its decline following the US Treasury’s unexpected decision to double its long-end bond buybacks, an intervention designed to push down long-term borrowing costs.
The US Dollar's decline continues as a result of the Treasury's unexpected decision to double its long-end bond buybacks. The move was made to lower long-term borrowing costs, but analysts at MUFG, UBS, and Brown Brothers Harriman (BBH) warn that it could backfire. The strategy is seen as a sign of the Treasury's discomfort with rising borrowing costs, which could weaken the Dollar.
Despite the initial rally in Treasuries, market attention has shifted to fiscal credibility. Analysts at MUFG predict that the Treasury's decision to expand bond buybacks from $2 billion to $4 billion is an attempt to curb rising long-term yields. However, managing yields without genuine fiscal consolidation could alienate global investors and create several avenues for Dollar depreciation.
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