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Citadel Securities warned that the Treasury Department’s expanded bond buybacks amount to “financial repression” that could weaken the dollar and fuel inflation.
Treasury Secretary Scott Bessent last week expanded purchases of long-term Treasuries after yields climbed to multiyear highs. The department could also tap its cash balance at the Federal Reserve to fund additional purchases.
Citadel argues that pushing long-term yields lower does not remove investor concerns over inflation and the US fiscal outlook. Instead, those pressures could shift into the currency market.
“Preventing Treasuries from clearing at lower prices does not eliminate that pressure. It merely shifts it elsewhere,” Nohshad Shah, Citadel’s head of EMEA fixed income sales, wrote in a client note.
Bessent at least doubled planned buyback operations for Treasuries with maturities between 10 and 30 years, signaling that the administration is uncomfortable with elevated borrowing costs, according to Shah.
The initial impact has been limited. The 30-year Treasury erased its gains a day after the announcement, while the dollar weakened and gold rallied.
Shah argued that suppressing long-term yields does not address the fiscal and monetary conditions driving them higher, particularly as government spending and heavy artificial intelligence investment continue to support demand.
A weaker dollar could further loosen financial conditions and increase inflation through stronger demand and higher import prices, he said.
“The bond market’s message is straightforward: fiscal or monetary policy should be tighter,” Shah wrote, arguing that a lasting solution would require tighter fiscal policy or central banks willing to raise rates if inflation remains elevated.
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