US Dollar: Treasury buybacks raise fiscal questions – BBH
Brown Brothers Harriman (BBH) notes that US long-term Treasury yields have retraced most of their decline following the Treasury’s expanded buyback announcement, while the US Dollar (USD) remains under pressure.
US Treasury buybacks have reduced long-term yields, but their impact on market perception risks hurting US fiscal credibility and the strength of the US Dollar, according to BBH. The Treasury's move to buy and retire older bonds in favor of new, liquid ones aims to improve liquidity and flatten the yield curve. However, the timing of the announcement coincides with the highest 30-year yield since 2007, suggesting concerns over long-end liquidity and higher borrowing costs.
The increased size of the buyback is likely financed through greater bill issuance, but the impact should be limited due to the relatively small scale. The Treasury's aggressive timing, just after the yield peaked, sends a message that the debt supply strain is increasing. Consequently, the perception that the Treasury is managing yields over liquidity undermines US fiscal credibility and negatively impacts the Dollar.
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