Beisent pushes down US Treasury yields, making the dollar the biggest "victim"! Alternative safe-haven currencies and emerging market forex surge in response

According to Zhitong Finance APP, when the yield on the US 30-year Treasury bond soared to 5.337% earlier this week—a new high since 2007—the “anchor” of global asset pricing was experiencing its most dramatic repricing in decades. Just as the market was concerned about runaway long-term borrowing costs, US Treasury Secretary Scott Besant dropped a bombshell—doubling the size of liquidity-supportive repurchase operations for 10- to 30-year Treasuries from the previous $2 billion per operation to at least $4 billion.

This operation quickly pushed down long-end yields: within hours of the announcement, the 30-year Treasury yield plunged nearly 10 basis points to 5.18%. However, Besant’s “rescue” move triggered a chain reaction in global FX markets—Bloomberg Dollar Index fell to a three-month low, with the yen, Swiss franc, and New Zealand dollar emerging as the biggest winners.

One comment from Akiki Omori, Chief Fixed Income Strategist of Deutsche Bank Japan, nailed the market’s interpretation: “The Treasury can buy back its own bonds, but it can’t buy back the dollar.”

From “Rule-Based and Predictable” to “Most Interventionist”: A 180-degree Shift in Policy Philosophy

On Wednesday, the US Treasury announced it would increase the cap on liquidity support repo operations for 10-20 year and 20-30 year nominal coupon Treasuries from $2 billion to at least $4 billion, effective September 9 and continuing until the end of the current refinancing quarter on November 4.

The timing of this move is a strong signal in itself. Just two weeks ago, the Treasury had released its quarterly refunding report. John Briggs, Head of US Rates Strategy at Natixis, pointed out that if this plan was announced as part of the routine statement, the market reaction would not have been so dramatic; “But choosing this timing shows officials didn’t like what was happening then.”

Omori described Besant as “the most interventionist Treasury Secretary in decades,” noting this marks a clear departure from the Treasury’s long-standing “rule-based and predictable” debt management principles. Ironically, Besant himself criticized former Treasury Secretary Yellen in 2024 for using similar strategies—like increasing short-term bill issuance to lower long-term financing costs—which he deemed as artificially impacting the market. Now, he is taking the same path.

Citi was blunt: “In our view, this move aims to control long-end yields rather than to maintain market functioning.” Wall Street exclaimed that this is essentially a “covert Operation Twist”—the Fed’s classic post-crisis tool of buying and selling Treasuries at different maturities to lower long-term rates.

The “Dollar Sacrifice”: Lowering Yields Comes at the Expense of the Greenback

Besant’s repo operation is putting the dollar in an awkward position. Mohit Kumar, Chief European Economist at Jefferies International, believes, “Any form of yield control weakens the dollar.”

Gerald Gan, Chief Investment Officer of Singapore family office Reed Capital, stated outright: “The dollar is undoubtedly the biggest victim.” He believes Besant is purposefully suppressing long-term real rates while signaling a tolerance for a weaker dollar to keep the economy running. Gan said he would “further diversify, reducing dependence on the dollar.”

Andrew Canobi, Fixed Income Head at Franklin Templeton in Melbourne, revealed the core issue: Besant “is basically saying, we’re ready to sacrifice some dollar strength in exchange for some control over maturity yields.” He added, “There has to be a release valve somewhere.”

The Bloomberg Dollar Index fell by about 0.8% on Wednesday and continued hovering at a three-month low on Thursday. The Dollar Index (DXY) even dipped to 98.708. Options market data shows traders’ first reaction was to increase short positions on the dollar, with euro and pound demand strongest. ING strategist Chris Turner noted that the Treasury’s decision to expand long-term bond repurchase operations “removes one of the major threats to risk assets this summer,” but puts pressure on the dollar.

Evercore ISI strategists noted, “Besant may welcome these exchange rate moves, as the Trump administration has long touted the benefits of a weak dollar”—believing it would enhance American competitiveness and shrink the trade deficit.

The Policy Puzzle Is Coming Together: From Intervening on the Yen to Suppressing Long-Term Debt

Washington’s recent policy moves are reshaping long-term confidence in the dollar. Just weeks ago, the US joined forces with Japan for the first joint yen-buying FX intervention since 1998. Besant has also hinted he might use Fed tools to fund future interventions if needed. Now, with “yield control” on long-term repos, a broader policy landscape emerges: Washington appears increasingly willing to trade market intervention for more controllable borrowing costs. Traders may see this as an attempt to “suppress market pricing for US fiscal sustainability and Fed anti-inflation credibility.”

Masahiko Loo, Senior Fixed Income Strategist at State Street Global Advisors, noted that while the dollar is still supported in the short term by AI-driven US equity inflows and rising oil prices, the latest measures strengthen the long-term de-dollarization and currency depreciation narrative. As sovereign AI plans and data center construction move outside the US, “The US’s current privileged capital inflow advantage may gradually erode.”

Overseas demand for US Treasuries is cooling simultaneously. Data from the US Treasury on Monday showed that in June, the total amount of Treasuries held by overseas investors fell to $9.299 trillion. Japan, the largest overseas holder, saw its June holdings drop to $1.116 trillion, with $26.4 billion sold in a single month.

Deutsche Bank strategist George Saravelos commented that this is “mild financial repression.” Loo at State Street Global Advisors said the latest measures reinforce the long-term de-dollarization and currency depreciation narrative; as sovereign AI and data center construction shifts abroad, the US’ current unique capital inflow advantage may gradually erode.

The “Structural Limitations” of Repos: Temporary Painkiller or Pandora’s Box?

While Besant’s intervention has stabilized the bond market in the short term, Wall Street is widely skeptical about its long-term impact.

Brian Jacobsen, Chief Economic Strategist at Annex Wealth Management, called the move a “temporary painkiller,” and observed, “We’re living through a fiscal dominance and modern monetization era.” He further warned: “The Fed is powerless to influence long-term interest rates. Now, the Treasury will issue more short-term debt since there’s weak demand for long-term debt. Even if the Fed hikes rates, the Treasury is essentially injecting more money-like short-term debt into the economy.”

Jack McIntyre, portfolio manager at Brandywine Global Investment, was more blunt: “What really drives down long-term rates is an economic slowdown or a resolution of the Iran conflict, and I’m not sure we’re there yet.”

The fundamental drivers of rising US Treasury yields remain unchanged: a $1.9 trillion fiscal deficit, inflation persistently above the Fed’s 2% target, an avalanche of AI corporate debt competing with government bonds for investors. Saravelos described this as a form of “mild financial repression.”

The “Besant Put” Boosts Carry Trade Appeal, Alternative Assets Get a “Window of Opportunity”: Yen, Gold, Swiss Franc, and EM FX Strengthen

In this situation where Besant’s move puts pressure on the dollar, alternative assets are seizing new opportunities.

Akiki Omori expects the yen to be the biggest winner over the next three to six months. Washington’s latest moves are removing the two main factors that previously weighed on the yen: Japan having to sell US Treasuries to finance currency intervention, and upward pressure from rising US long-term yields. He also favors gold, followed by the Swiss franc and euro as alternatives to the dollar.

Market data confirms this trend. On Wednesday, the yen, Swiss franc, and New Zealand dollar were the biggest gainers against the dollar. Gold was also immediately buoyed by the repo news.

Analysis pointed out that traders are likely to view this as an attempt to suppress market pricing on US fiscal sustainability and Fed anti-inflation credibility, providing structural support for alternative assets.

MSCI Emerging Markets Currency Index Hits Record High

Meanwhile, emerging market currencies have hit new highs, as a weaker dollar boosts popular trades and offsets the latest round of oil price rises. The Treasury’s announcement to expand government bond buybacks has weakened the dollar, giving so-called carry trades a boost. This makes the dollar cheaper as a funding currency for investing in high-yielding EM currencies.

“The Besant put—or the fact that someone is watching over the US Treasury market—eliminates one of the main summer threats to risk assets and should keep carry trading strategies in vogue,” said Chris Turner, Global Markets Head at ING.

The MSCI Emerging Markets Currency Index rose 0.2%, extending gains for a second straight trading day. The Thai baht led, up 0.6% to a two-month high; the Philippine peso also rebounded from historic lows. The Czech koruna was the best performer in Europe, Middle East, and Africa (EMEA) markets.

In other FX markets, Indonesia’s rupiah hit a two-month high against the dollar. Commerzbank said FTSE Russell’s decision this week to delay index changes eased a potential equity-linked headwind for the rupiah. The Jakarta Composite Index was among the world’s best-performing stock indexes Thursday.

Commerzbank economists Henry Hao and Moses Lim said in a report: “FTSE could still reduce the weight of its limited free float stocks in September, but the decision has temporarily postponed the risk of these names being downgraded to frontier market status.”

The Korean won, after hitting an 11-month high in the prior session, lagged other major currencies this week. Meanwhile, South Korea’s stock market rose for the first time this week, with the KOSPI index posting its biggest one-day gain this month.

Samsung Electronics and SK Hynix were the main drivers of the MSCI Emerging Markets Stock Index’s 2% gain, thanks largely to expectations that shareholder returns would reach record highs. TSMC stock also rose, another major index constituent and a beneficiary of the AI boom.