US Treasury buyback announcement spurred a bull flattener in yields, historically linked to dollar weakness when equities rise.
The US Dollar Index (DXY) faced renewed downward pressure after the US Treasury’s August 19 buyback announcement, which drove the 30-year Treasury yield down nearly 10 basis points. TD Securities strategists noted this triggered a bull flattener in the yield curve, a dynamic that typically weighs on the dollar when US equities strengthen.
Historically, bull flattening occurs during risk-off shocks, often boosting the dollar via a flight-to-quality effect. However, when equities rise alongside bull flattening—a rare scenario—the dollar averages a 0.3% decline, contrasting with a typical 1.74% rally. The combination of muted July CPI, negative retail sales, and institutional credibility concerns further cemented the dollar’s bearish momentum.
The analysis suggests the dollar’s bearish regime may persist unless a US equity shock reverses the trend, potentially delaying a rebound until 2026.