US Treasury's Expanded Bond Buybacks Echo 'Operation Twist,' Risking Weaker Dollar, Deutsche Bank Warns

The U.S. Treasury's surprise announcement that it will significantly expand its long-term debt buyback program is structurally similar to the Federal Reserve's past "Operation Twist" and could trigger a sustained decline in the U.S. dollar, according to an analysis from Deutsche Bank.

Treasury Ramps Up Buybacks

The U.S. Treasury Department announced without warning on Wednesday that it would at least double the single-operation cap for its liquidity support buybacks. The move affects nominal coupon securities in two key maturity buckets:

• 10-to-20-year maturities
• 20-to-30-year maturities

For these bonds, the maximum repurchase amount per operation will increase from $2 billion to at least $4 billion. In a note to clients, Deutsche Bank's Head of FX Research, George Saravelos, observed that the U.S. dollar weakened "abnormally sharply" in the minutes following the announcement.

A Form of 'Financial Repression'

Saravelos described the action as a form of "soft financial repression" and drew a direct parallel to the Federal Reserve's well-known "Operation Twist." He argued the Treasury is effectively taking over a yield curve management function that has historically been the domain of the central bank.

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"The buyback is structurally very similar to a Fed twist operation," Saravelos wrote. The Treasury will need to issue more short-term T-bills to finance the withdrawal of longer-duration assets from the market. This action eases financial conditions, which Deutsche Bank believes the Fed may feel compelled to counteract with tighter policy.

Implications for the Dollar

Deutsche Bank views this policy as a clear negative for the U.S. dollar. The bank's framework suggests that if policymakers prevent long-term bond prices from falling to market-clearing levels, the adjustment pressure shifts to the currency. "If the market price of a Treasury is not ‘allowed’ to adjust lower, the FX price of a foreigner’s Treasury holdings must adjust via a weaker dollar," Saravelos explained.

The report frames the buyback expansion as a signal of growing "unease" in Washington over persistently rising long-term Treasury yields. This move, along with what the bank cited as prior U.S. efforts to block Japanese yen intervention, fits into a policy trend aimed at suppressing long-term U.S. borrowing costs.

Looking ahead, the market's focus will shift to the Federal Reserve's response. According to Deutsche Bank's analysis, if the Fed chair—named in the bank's hypothetical framework as Kevin Warsh—fails to acknowledge the easing effect of the buybacks, that silence would be an "additional driver for dollar weakness." The more the market perceives these actions as distorting price discovery, the greater the potential downside for the U.S. currency.