Dollar Weakens as Treasury Boosts Bond Buybacks

Key facts

• The U.S. Treasury will double buyback operations for longer-dated bonds.
• The dollar weakened against the euro, sterling, and Swiss franc.
• The dollar hit a three-month low against the euro.
• Research indicates a growing divergence between the U.S. dollar and U.S. Treasury bonds.
• The perceived safety and liquidity premium for Treasuries has diminished.

The U.S. dollar weakened against major currencies, including the euro, sterling, and Swiss franc, following the U.S. Treasury Department's announcement to double its liquidity support buyback operations for longer-dated bonds. This move is interpreted as a signal of increased dollar availability and potentially expansionary monetary policy.

Research highlights a growing divergence between the U.S. dollar and U.S. Treasury bonds, a trend that began after the 2008 global financial crisis and intensified around 2015 and again in 2020. This decoupling is attributed to a scarcity in dollar lending, exacerbated by post-2008 regulations limiting banks' ability to lend in U.S. dollars, and a significant oversupply of Treasuries due to massive issuance since 2008. The outstanding value of Treasury bonds reached $29 trillion in 2025, a substantial increase from $5 trillion in 2008.

Traditionally, investors accepted lower yields on Treasuries due to their perceived safety and liquidity, a benefit known as 'convenience yield.' However, this premium has diminished amid record U.S. debt. Researchers found that long-term U.S. government bonds have offered higher yields relative to comparable foreign bonds since 2008, and this trend has more recently extended to short-term maturities as well, indicating a waning appeal of Treasuries in international comparisons.