A U.S. Treasury Department plan to expand bond buybacks risks weakening the dollar and stoking inflation, Citadel Securities warned on Monday. The program, which focuses on repurchasing long-dated debt maturing between 10 and 30 years, has drawn criticism from the firm’s fixed income team as a form of financial repression.
The Treasury, under Secretary Scott Bessent, last week doubled the size of the buyback operations, a move Citadel’s head of fixed income sales for EMEA, Nohshad Shah, described as an attempt to suppress long-term yields. Shah noted in a client note that suppressing yields does not eliminate the underlying economic pressures but merely shifts them elsewhere. The Treasury has not ruled out using the Treasury General Account, its cash balance at the Federal Reserve, to fund the purchases.
Long-term bond yields have surged to multi-year highs, prompting the government to signal discomfort with the elevated levels. The market response to the expanded buyback program has been muted: 30-year bonds reversed gains within a day of the announcement, while the U.S. dollar weakened and gold prices rose. Citadel’s analysis suggests loose fiscal and monetary policies, combined with full employment and heavy investment in artificial intelligence, are already stimulating the economy, leaving the dollar vulnerable to further depreciation if the buyback program proceeds as planned.
