Dollar Weakens as Treasury Boosts Bond Buybacks

The U.S. dollar experienced a weakening trend against major currencies, including the euro, sterling, and Swiss franc, subsequent to the U.S. Treasury Department's declaration 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.

Concurrently, 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 two primary factors: a scarcity in dollar lending, exacerbated by post-2008 regulations that limited 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.