Deutsche Bank strategist George Saravelos compared the effect to the Fed's 2011-12 Operation Twist, which flattened the yield curve measuring the gap between short-term and long-term yields by selling short-dated debt and buying long-dated securities. The buybacks, along with encouraging foreign central banks to use a Fed repo facility rather than sell Treasuries outright, are "soft-form financial repression" to hold down longer-dated yields, he said.
Not everyone sees this as a decisive shift. Sarah Ying, head of FX strategy at CIBC Capital Markets, called it a "mini" version of past dollar-stress episodes — milder than April 2025's "Liberation Day" selloff or January's pressure. It looks less like markets testing Washington's resolve than the reverse, she said. "It's really Bessent testing the market, and then the market fighting back."
The timing has fueled political speculation, too. With midterms approaching, lower long-term yields, especially mortgage rates, would help the Trump administration politically. "Gasoline prices are still high, mortgage rates are rising, which with the midterms just around the corner may be something that they want to address," Osborne said.
Still, Treasury's room to maneuver is limited. Pushing too hard to ease conditions risks reigniting inflation and forcing a more hawkish Fed. "Fed hikes into midterms don't seem like the greatest story in the world," said Ying.
Steve Englander, global head of G10 FX research and North American macro strategy at Standard Chartered Bank, argued that what unsettled investors is less the fiscal math than the sense that Bessent is improvising through interventions in illiquid market corners — tactics that can look like "a panic response" and lose credibility if overused.
"He really caught us looking the wrong way twice already," Englander said, but he expects the dollar will be ultimately supported by relatively high yields and economic fundamentals, including strong U.S. productivity and earnings growth.
The episode changes neither side of the ledger, Englander said. "It's not going to change the good fundamental, which is the productivity side of the economy. It's not going to change the bad fundamental, which is the deficit side."
(Reporting by Karen Brettell in New York; Editing by Colin Barr and Matthew Lewis)
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