The dollar fell sharply Wednesday as the Treasury Department moved to calm a bruising selloff in government debt, doubling the size of planned buybacks of longer-term bonds and triggering an immediate rally across the market.

Treasury said it would increase individual repurchases of securities maturing in 10 to 30 years from as much as $2 billion to at least $4 billion between Sept. 9 and Nov. 4. The government will effectively become a larger buyer of its own older debt, improving demand and liquidity at a time when investors have grown increasingly reluctant to hold long-dated bonds.

The 30-year Treasury yield dropped nearly 10 basis points to about 5.19%, after reaching 5.34% Tuesday—its highest level since 2007. The 10-year yield fell toward 4.65%. Bond prices rise when yields fall.

The relief came with a complication: the dollar weakened as investors interpreted the intervention as evidence that Washington is increasingly concerned about borrowing costs. The WSJ Dollar Index fell roughly 0.6%, while the euro, Japanese yen and Swiss franc strengthened against the U.S. currency.

Lower Treasury yields can eventually ease pressure on mortgages, corporate loans and other borrowing costs. But the buybacks do not reduce the federal debt. Treasury may need to issue additional short-term bills to finance the purchases, shifting part of the government’s funding burden rather than eliminating it.

The rally therefore calmed the market without resolving the forces behind the selloff: persistent inflation, elevated oil prices, enormous federal borrowing needs and growing doubts about investors’ willingness to absorb long-term U.S. debt at lower yields.

JBizNews Desk | New York

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