Experts warn Treasury bond buyback plan could pressure dollar and yields

A senior fellow at the Brookings Institution warned on Thursday that the Treasury Department's plan to accelerate buybacks of long-term bonds could add depreciation pressure on the dollar and push the Treasury market toward a currency-related crisis. The commentary followed the 30-year Treasury yield reaching its highest level in nearly two decades, a move that briefly reversed before climbing again as investors questioned Treasury Secretary Scott Bessent's ability to contain the $32 trillion market.

Brooks argued that the buyback scheme is a form of financial engineering that does not address the underlying fiscal deficit, which is projected to hit $2 trillion this year. He cited Japan's experience of keeping bond yields artificially low, noting that such policies have contributed to a prolonged decline in the yen.

“Markets are primed for Dollar debasement to resume and — as Japan shows — it can be next to impossible to stabilize a currency once it enters a devaluation spiral,” Brooks wrote.

Capital Economics' chief markets economist offered a contrasting view, saying concerns about a debasement trade are exaggerated and that a strong U.S. economy could support a firmer dollar in the coming months, though he cautioned that unconventional policy ideas could alter that outlook.

“That said, if the steady stream of unconventional policy ideas continues, that may well change,” he said.

LPL Financial's chief fixed-income strategist described the recent rise in Treasury yields as a necessary normalization after a period of near-zero rates, noting that rate volatility remains low, inflation expectations are anchored and bond auctions continue to attract demand. He expects long-term yields to keep climbing due to the sizable budget deficit and ongoing debt issuance, and said the Treasury is likely to use buybacks as a symbolic measure to prevent yields from rising too quickly.

“But it is a reminder that the Treasury Department is paying attention and will do whatever it can to keep yields from getting too high too quickly,” he added.