USD/JPY, EUR/USD flows: Dollar breaks lower with yields after Treasury backstopping signal
Dollar breaks lower as Treasury increases long end buyback ops
Drives long end yields down, reverses the week's gains, and viewed as backstopping reassurance
Dollar reaction both driven by yields but also the 'bad look'
The dollar breaking lower heading into the NY session as the US Treasury responds to the long end weakness by announcing that it will double the size of its ‘liquidity support’ buyback operations for longer dated coupons to at least $4bn from $2bn each.
The operations help dealers shift off-the-run stock and while the overall size of the ops cumulative may not be massive across the quarter, the increase does add up moderately. More importantly this responsive move gives the market a sense of the Treasury being hyper sensitive to yields at these highs and still very much focused on active interventions and signalling to backstop. The announcement may also be seen as looking to offer some encouragement into the 20yr auction today.
US30s down around 9bp reversing the last week’s run up and taking the dollar lower with it. The dollar impact may not just be on the yield impact but also with the 'intervention' viewed dollar negative on the way fiscal excess driven bond issuance is being actively managed. This includes everything from these types of measures through to issuance being moved increasingly short on the issuance profile. In other words, it may loosely speak to the overall thematic bracket of "dollar debasement" if you like - precious metals, briefly weighed with the yield spike, certainly liking the announcement too.
EUR/USD breaking out higher above 1.1620/30 resistance - a close above here will improve sentiment and extend late-June gains initially towards the 1.1650 Fibonacci retracement. A break will open up congestion around 1.1700. USD/JPY breaking back towards 158, which remains the key level ahead of 56.60 - 157.00 range.