US Treasury buybacks may redirect capital towards Asia

The US Treasury’s decision to expand purchases of long-dated government bonds could encourage some capital to move from dollar assets towards emerging markets and Asia, although Thai analysts warn that any effect may be temporary.

The announcement initially pushed down long-term US Treasury yields and weakened the dollar. However, yields subsequently rebounded as investors remained concerned about inflation, the federal deficit and the sustainability of US public debt.

Treasury doubles long-end buybacks

The US Treasury announced on August 19 that it would at least double the maximum size of liquidity-support buyback operations for nominal coupon securities in the 10-to-20-year and 20-to-30-year sectors.

The maximum will rise from US$2 billion to at least US$4 billion per operation from September 9 until the end of the current quarterly refunding period on November 4.

The Treasury said the increase was intended to provide greater liquidity support in longer-dated sectors, where it had consistently received large volumes of high-quality offers from market participants.

Under its quarterly financing plan, the Treasury had previously authorised purchases of up to US$38 billion in older, less actively traded “off-the-run” securities to support market liquidity. It also authorised up to US$25 billion of shorter-dated securities for cash-management purposes.

The announcement triggered an immediate rally in long-dated bonds. The 30-year yield initially fell by about nine to 10 basis points to around 5.19%, while the dollar index declined by approximately 0.7%.

The movement was incorrectly described in the original Thai report as a decline of “10 percentage points”. A basis point equals 0.01 percentage point.

The initial relief proved short-lived. By August 20, the 30-year yield had risen again to about 5.24% as investors continued to demand higher compensation for holding long-term US debt.

Markets question whether relief will last

Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, said sentiment towards long-dated government bonds worldwide had become extremely negative.

He argued that a sustained decline in yields would probably require a material economic slowdown or an easing of geopolitical tensions, rather than buybacks alone.

John Briggs, US rates strategist at Natixis North America, said the unexpected announcement sent a clear message about the level of yields that concerned the administration.

“If yields go too high, the Treasury will fight back, and now we have a sense of where their pain threshold is,” Briggs said.

Gerald Gan, head of investments at Reed Capital Partners, said the dollar could be one of the main losers if the authorities continued seeking lower real long-term interest rates. He said the prospect of a weaker dollar supported greater diversification into non-dollar assets.

Nevertheless, the Treasury’s stated purpose is to improve liquidity rather than formally target a particular yield level. Market participants have interpreted the decision as a response to the sharp rise in long-term borrowing costs.

US debt burden intensifies concerns

The increase in buybacks comes as gross US national debt has exceeded US$40 trillion for the first time, rising from US$30 trillion in January 2022.

Treasury data showed debt at approximately US$40.05 trillion. Interest paid on the public debt during the first 10 months of fiscal 2026 reached about US$1.17 trillion, up 15% from the same period a year earlier.

Higher long-term Treasury yields affect more than government finances. They can increase borrowing costs for mortgages, companies and other parts of the economy because many lending rates are priced against government bond yields.

Analysts call it a ‘Fiscal Operation Twist’

Dr Amonthep Chawla, executive vice-president and head of research at CIMB Thai Bank, described the approach as a “Fiscal Operation Twist”.

The original Operation Twist was a Federal Reserve strategy involving changes to the maturity composition of its securities holdings to place downward pressure on long-term interest rates without substantially expanding its balance sheet.

In the latest case, the Treasury—not the Federal Reserve—is increasing buybacks of older long-dated bonds. Amonthep said the strategy could be viewed as issuing more short-term Treasury bills while using available liquidity to repurchase securities in the 10-to-30-year sectors.

He warned that the policy could only buy time if the underlying pressures from inflation, expanding public debt, geopolitical conflict and weakening demand for long-term bonds were not resolved.

“Government intervention using public funds has limits because resources are finite, and every action has side effects,” Amonthep said.

“If the authorities buy long-dated bonds to push yields down, they may have to reduce purchases elsewhere, potentially creating volatility in other parts of the yield curve.”

Baht could strengthen temporarily

Amonthep said lower US yields and a weaker dollar could make dollar-denominated assets less attractive, encouraging capital to move towards emerging markets and Asia.

That could support the baht in the short term. However, he cautioned that the effect of government intervention was often limited and could be reversed if inflation expectations or geopolitical conditions changed.

Thailand’s Fiscal Policy Office has similarly warned that US interest-rate expectations, geopolitical developments and changes in the current-account balance could cause volatile capital flows and currency movements.

The dollar also retains its role as a global safe-haven currency. A renewed risk-off environment could therefore draw capital back into dollar assets and cause funds to leave Thailand rapidly.

Thai bond yields may edge lower

Dr Piyasak Manason, head of economic research at InnovestX Securities, said lower US yields could pull Thai government bond yields down slightly because the two markets generally move in the same direction.

Since the beginning of 2026, the US 10-year yield had risen by about 50 basis points and its Japanese equivalent by 70–80 basis points, compared with an increase of about 20 basis points in Thailand, according to Piyasak.

He said this indicated that the Thai bond market had been relatively resilient, supported by investor confidence in the country’s fiscal policy.

The buybacks may also provide modest support for Thai equities if lower financing costs improve global market sentiment. However, Piyasak said the measure alone was unlikely to produce a strong rally because Thai equities remained dependent on broader global and regional momentum.

Lower funding costs could ease interest expenses for listed companies and support profitability over time. The direct benefit to banks may be more limited, but Thailand’s banking sector remains financially stable, he added.