The US Treasury moved on three fronts: the foreign-exchange market, dollar liquidity and debt management. These fronts defend one thing: foreign investor demand for Treasury securities. Measuring the remaining effect of each intervention reveals a clear difference between an instrument accompanied by actual spending and another limited to a promise.
Over three weeks, the United States made two moves in different markets, each of a different nature: the first involved actual spending, while the second promised future purchases. This research measures the remaining impact of each.
The first move — Foreign Exchange Intervention. On 30 July, Japan's Ministry of Finance intervened unilaterally in the New York market to buy yen; the following day, 31 July, the US Treasury joined, selling euros from its reserves and buying yen. This was the first coordinated intervention to buy yen in twenty-eight years. Our data show the following result: the dollar fell against the yen from 163.39 to a closing low of 156.55, and after fourteen sessions remained at 158.89 — meaning that 66% of the intervention's impact remains.
The second move — doubling Treasury Buybacks. On 19 August, the Treasury announced an increase in Liquidity Support for long-dated Treasury securities from 2 billion dollars to 4 billion dollars at least per operation, effective from 9 September through 4 November. The thirty-year yield fell on the day of the announcement; a Basis Point is a unit for measuring changes in yield. The decline was 9 basis points. The ten-year yield fell by 6 points. After only two sessions, the ten-year yield had fully returned to its previous level, while the thirty-year Treasury yield remained only 3 basis points below its starting point.
The conclusion in one sentence: the intervention accompanied by actual spending still retained two-thirds of its impact after three weeks; the intervention limited to a commitment to future purchases lost two-thirds of its impact in two sessions.
And a third front has yet to move. The Treasury Secretary asked the Federal Reserve to expand the Foreign and International Monetary Authorities (FIMA) Repo Facility, whose ceiling is 60 billion dollars per counterparty — not an aggregate ceiling — so that Japan can obtain dollars without selling any portion of its holdings of roughly 1.14 trillion dollars in Treasury securities. The request came in a social-media post and requires a majority vote of Federal Open Market Committee members; that vote has not taken place.
They share one context: federal debt crossed the 40 trillion-dollar threshold on Tuesday 18 August, at 40,047,425,768,420 dollars — and the following day the Treasury doubled buybacks at the Long End of the Yield Curve.
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