Treasury's Debt Buyback Sparks Dollar Debasement Fears
Treasury Secretary Scott Bessent announced a plan to increase buybacks of long-term bonds after the 30-year yield hit its highest level in nearly 20 years. Yields briefly retreated on the news, then climbed back to earlier levels as Wall Street questioned Bessent's ability to hold back the $32 trillion Treasury market.
Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, published a sharp warning on Substack Thursday. He called the buyback scheme 'mere financial engineering' that does nothing to address the underlying deficit, which is on track to reach $2 trillion this fiscal year.
'When fiscal policy is out of control, governments can obviously do many things to cap yields, but this just puts depreciation pressure on the currency because markets don't get paid the kind of risk premium they desire,' Brooks wrote. 'What would be a debt crisis thus morphs into a currency crisis, which is why the Yen has been falling for so many years.'
Brooks has long pointed to Japan's policy of keeping bond yields artificially low as a mechanism for managing a debt burden that tops 200% of GDP. With markets unable to price Japanese debt properly, investors have sent the yen lower for years. He sees a parallel forming in Washington.
'Markets are primed for Dollar debasement to resume and — as Japan shows — it can be next to impossible to stabilize a currency once it enters a devaluation spiral,' Brooks warned. 'The U.S. is playing with fire with this buyback.'
The dollar did tumble following the announcement, a move Wall Street has dubbed the return of the 'debasement trade,' accompanied by a jump in precious metal prices as investors anticipated further dollar devaluation.
Not everyone is sounding the alarm. Jonas Goltermann, chief markets economist at Capital Economics, said in a note Thursday that debasement trade worries are overblown and predicted the dollar will strengthen in coming months on the back of a robust U.S. economy. He attributed the recent dollar drop to yield differentials rather than doubts about U.S. credibility on inflation — though he added that 'if the steady stream of unconventional policy ideas continues, that may well change.'
Lawrence Gillum, chief fixed income strategist for LPL Financial, framed the run-up in Treasury yields as a necessary normalization from the near-zero era rather than a crisis. He noted that rate volatility remains subdued, inflation expectations are still anchored, and bond auctions continue to draw sufficient demand. Even so, Gillum expects long-term yields to keep climbing given the steep budget deficit and fresh debt issuance from both the Treasury and AI hyperscalers — meaning the buyback tool will likely be deployed again. He called it 'more a symbolic Band-Aid than an actual fix,' but acknowledged it signals the Treasury is watching.
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The numbers come first, and here they are: a $2 trillion deficit, a $32 trillion market, and a 30-year yield near a 20-year high. Free-market readers should understand what is actually at stake. The buyback does not reduce the debt load; it redistributes it on the yield curve while signaling that the government will intervene rather than discipline its own spending. Capital rewards clear rules, and a Treasury that manages optics instead of the balance sheet is not offering them. Whether or not a full yen-style spiral materializes, the policy direction — more intervention, less fiscal restraint — is precisely the kind of environment that erodes the dollar's reserve-currency premium over time. The taxpayer, ultimately, holds the tab.
