MUFG Research discusses the UST buybacks program.

The US Treasury unscheduled announcement yesterday that it would increase US Treasury bond buybacks resulted in the biggest daily drop for the US dollar since March when you exclude the two episodes of USD selling intervention in April/May and July," MUFG notes.

"We would  argue that Scott Bessent is not following his own advice. Following the joint intervention at the end of July Bessent stated that “you can give market signals with intervention, but it’s policy that turns it”. He added that FX intervention “would need to be followed by Japanese policies addressing the forces driving the yen lower...

Well, if Scott Bessent really believes that then the US Treasury could play a key role here by of course addressing the ever-expending fiscal deficit with fiscal consolidation.

We all know that’s not going to happen and hence the danger now following this announcement (and the FIMA report comment to Japan following intervention) is that it proves counter-productive and leads to reduced appetite for either holding US assets (UST bond sales) or reduced appetite for exposure to the US dollar (dollar selling) or both. Even if the Treasury buy-back plan does contain yields, the US dollar now remains more vulnerable to the downside on the fact that yields are potentially lower," MUFG adds.