The U.S. Treasury Department's announcement of an expansion in long-term Treasury bond buybacks has unexpectedly ignited concerns about U.S. dollar depreciation against the backdrop of persistently climbing bond yields and a weakening dollar, driving significant gains for Bitcoin and gold.
On August 19th, U.S. Treasury Secretary Bessent announced that the scale of long-term Treasury bond repurchases would be doubled starting September 9th to provide liquidity support to the market.
Following the news, Bitcoin's rally was particularly strong—the iShares Bitcoin Trust ETF, which tracks the spot price of Bitcoin, surged 22.6% for the week, posting daily gains of around 6% for three consecutive trading sessions.
Gold also benefited from the weaker dollar, breaking above its 200-day moving average. The SPDR Gold ETF recorded a $1.3 billion single-day net inflow on the day of the announcement, marking its largest single-day inflow since mid-January of this year.
However, the bond market reacted tepidly to this intervention. The yield on the 10-year U.S. Treasury note continued to rise to 4.737% on Friday, while the 30-year yield climbed to 5.276%, essentially returning to levels seen before the announcement, casting doubt on the actual effectiveness of these buybacks.
Stephen Coltman, Head of Macro at crypto asset management firm 21Shares, stated in an interview that the Treasury's August 19th buyback announcement was the "primary catalyst" for Bitcoin's current rally. The larger-scale long-term Treasury buybacks came as a "shock" to the market, reigniting dollar devaluation trades.
The logic behind so-called "currency devaluation trades" is: Sustained fiscal deficits and inflation expectations will erode the purchasing power of the dollar over the long term, prompting investors to turn to hard assets like gold, silver, and Bitcoin for preservation of value.
Coltman explained that the Treasury's buyback operations, by suppressing long-term Treasury yields, could effectively amount to a form of easing financial conditions, thereby stimulating inflation, weakening the dollar's appeal, and making it difficult for investors holding long-term Treasuries to obtain sufficient inflation compensation.
The dollar faced clear pressure this week. The ICE U.S. Dollar Index fell 0.8% for the week, continuing to weaken after the Treasury's announcement.
Coltman pointed out that in a context where the supply of U.S. dollars can theoretically expand indefinitely, Bitcoin, with its fixed total supply, holds a natural hedging appeal for some traders.
Furthermore, Bitcoin's sharp rally this week was compounded by other positive factors. Donald Trump's meeting with crypto industry leaders at the White House on the same day, along with market optimism regarding the prospects for the "Clarity Act" crypto regulatory legislation, collectively fueled this rally.
Bitcoin's exceptionally large gains also triggered a short squeeze effect. Coltman noted that traders who had been shorting Bitcoin were forced to exit their positions as prices surged sharply. The additional buying pressure from short covering further drove prices higher, creating a positive feedback loop.
Gold also rose this week, though its gains were less pronounced than Bitcoin's.
Truist Wealth upgraded its rating on gold to neutral following the U.S. Treasury's announcement.
Keith Lerner, Chief Investment Officer at the firm, stated that gold benefited from the weaker dollar and successfully broke above its 200-day moving average, currently around $4,518 per ounce. From a technical perspective, this breakout is seen as positive, indicating that gold prices may continue their upward trend.
Despite the Treasury deploying its buyback tool, the upward pressure on long-term Treasury yields has not been fundamentally alleviated.
Coltman expects the bond market will further test Bessent's willingness to expand the buyback scale further. He noted that the current buyback scale itself remains limited, and concerns that larger-scale buybacks could trigger inflation may leave some investors feeling "uneasy."
He added that while the U.S. Treasury is not directly printing money, using short-term Treasury bills to finance the repurchase of long-term bonds could have an economic effect similar to monetary expansion, as short-term T-bills are essentially cash-equivalent assets.
The yield on the 30-year Treasury had recently risen to its highest level since 2007 by the end of July, while the 10-year yield also hit its highest point since January 2025 on July 31st.
Ian Lyngen, Head of U.S. Rates Strategy at BMO, warned in a report on Friday:
Beyond the rekindled concerns about de-dollarization, the U.S. credit rating, and demand for higher term premiums, there is widespread skepticism in the market regarding whether the Treasury's latest buyback adjustment can alter the fundamental drivers behind the recent bond sell-off.
In a broader context, total U.S. federal government debt exceeded $40 trillion this week, with annual interest payments now exceeding $1 trillion. The continuously rising long-term yields are increasing borrowing costs for households, businesses, and the government.
The overall U.S. bond market declined slightly this week, with the Vanguard Total Bond Market ETF, which tracks investment-grade bonds, edging down 0.1% for the week.
