US dollar set to decline for second consecutive month as government accelerates debt buybacks

The US dollar is on track to close August with a 0.9% loss on the Bloomberg Dollar Spot Index, following a 1.3% slide in July.

On August 19, the Treasury announced it would accelerate its liquidity-support buyback program targeting longer-dated government securities. The maximum size of certain buyback operations will jump to $4 billion per event, double the previous $2 billion cap. The expanded program runs from September 9 through November 4.

What the Treasury is actually doing

The 30-year Treasury yield hit 5.30% in mid-August, its highest level since 2007. That kind of number makes the cost of servicing existing debt significantly more painful, and it makes issuing new debt even more expensive.

Treasury Secretary Scott Bessent added fuel to the fire on August 20 when he suggested buybacks could exceed even the announced figures.

The dollar dropped 0.8% on August 19 alone, falling to its lowest level since late May.

The debasement conversation

Strategists at MUFG, Scotiabank, and Citigroup have all flagged further downside risk for the dollar in the wake of these developments. The common thread in their analysis is dollar debasement: a sustained pattern where fiscal policy choices make holding that currency less attractive relative to alternatives.

What this means for markets

For currency traders, the buyback expansion gives traders a fundamental reason to stay short the greenback through at least November, when the current program window closes.

For bond investors, the buybacks should provide a near-term floor under long-dated bond prices, which means yields may stabilize or even decline slightly. But the mechanism creating that floor is itself inflationary, which means the real return on those bonds could deteriorate even as nominal yields hold steady.

The key variable to watch through November is the 30-year yield. If buybacks successfully push it below 5%, the Treasury will have accomplished its near-term goal but at the cost of further dollar credibility. If yields remain stubbornly above that level despite the expanded program, it would signal that the market requires even more intervention.

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