The U.S. Treasury’s expanded bond buyback program risks weakening the dollar and fueling inflation, according to Citadel Securities. The firm’s head of EMEA fixed-income sales, Nohshad Shah, warned in a client note that the initiative amounts to marginal financial repression by suppressing long-term Treasury yields.
The Treasury Department, under Secretary Scott Bessent, last week doubled or more the buyback program for 10- to 30-year securities after long-dated yields surged to multi-year highs. The move followed criticism of elevated borrowing costs amid strong economic activity and heavy investment in artificial intelligence. Analysts noted that the intervention provided limited support, with 30-year bonds reversing gains within a day.
Shah argued that preventing Treasuries from clearing at lower prices does not resolve underlying pressures but merely redistributes them. He highlighted that loose fiscal and monetary policies are sustaining demand in a full-employment economy, keeping yields elevated despite the government’s efforts. The dollar has since declined, while gold prices have rallied in response.
The Treasury may fund the purchases using the Treasury General Account, its cash balance held at the Federal Reserve. Shah cautioned that a weaker dollar could ease financial conditions further, potentially boosting import prices and adding to inflationary pressures. The comments come as investors weigh the broader implications of the government’s intervention in long-term debt markets.
