The U.S. treasury is saving bonds but killing the dollar

SP500

Key zone: 7,700 - 7,800

Buy: 7,850 (after retesting 7,600); target 8,100; StopLoss 7,780

Sell: 7,650 (on strong negative fundamentals); target 7,450-7,350; StopLoss 7,720

The U.S. Treasury is increasing the volume of buybacks of previously issued government bonds. On the surface, this is a technical operation designed to improve market liquidity. In reality, it is a much more troubling signal: Washington is becoming increasingly active in trying to control the cost of its own debt.

And this is precisely where the problem for the dollar begins.

The Treasury will at least double the volume of buybacks of long-term Treasuries. The new limit will be no less than $4 billion per operation. The reason is obvious: long-term bond yields have risen too high, and the market is demanding an increasingly large premium for holding U.S. debt for decades.

For Washington, this is no longer just a matter of market prices. The higher the yields, the more expensive it becomes to service the enormous federal debt.

A reminder:

Bond buybacks do not mean that the U.S. is beginning to reduce its government debt. The mechanics are different: the Treasury buys back previously issued, often less liquid securities, supporting the functioning of the market. Particular attention is focused on the segment of the curve from 10-year to 30-year Treasuries — this is where selling pressure has been most pronounced.

The market reacted:

• the 30-year Treasury yield fell to around 5.185%;
• the dollar index remains near a three-month low after falling about 0.8% the previous day;
• the yen, Swiss franc, and New Zealand dollar strengthened against the greenback;
• the Treasury is preparing a $16 billion offering of 20-year bonds.

The last point is especially important. Washington is simultaneously trying to support the long end of the market and test how willing investors actually are to absorb a new supply of long-term debt.

The problem is that buybacks treat the symptoms, not the cause. The fundamental pressure on U.S. bonds has not disappeared:

• the budget deficit remains enormous;
• government borrowing continues to increase;
• debt-servicing costs are rising;
• inflation risks persist;
• investors are demanding a higher premium for long-term risk.

You can support market liquidity. You can buy back older securities. You can temporarily push yields lower. But you cannot simultaneously borrow on a massive scale, keep long-term rates low, and avoid paying an additional premium for it.

If debt supply continues to grow faster than demand, the market will once again demand higher yields.

So, what does this mean?

The Treasury is trying to solve the problem of the cost of U.S. debt, but technical bond buybacks could turn into a currency problem.

For now, the system is holding up. The U.S. still has the world’s largest capital market, the dollar remains the primary reserve currency, and

U.S. assets are receiving additional support from AI investment. But the direction of the risk is becoming clear. And the more often the Treasury has to intervene, the worse it will be for the dollar. The alternatives are already there: the yen, Swiss franc, euro, and gold.

And Trump definitely won’t like that scenario.

So we act wisely and avoid unnecessary risks.

Profits to y’all!