Hedge funds boost dollar shorts after Bessent buyback plan

Hedge funds and other institutional investors stepped up short positions on the U.S. dollar after Treasury Secretary Scott Bessent said the Treasury would at least double purchases of longer-dated Treasuries through its buyback programme. The announcement came last week and coincided with the dollar’s largest one-day decline in almost three weeks. In Asian trading the dollar was little changed on Monday, but positioning and options activity point to increased concern about its near-term outlook.

Bessent described the plan as a “Treasury twist”: buying longer-maturity debt while issuing more short-term securities to relieve pressure at the long end of the Treasury curve. Treasury officials framed the buybacks as a tool to manage the government’s debt profile and help lower elevated long-term borrowing costs, not as a substitute for Federal Reserve monetary policy.

Options markets show higher demand for protection against a falling dollar than for hedges against a stronger greenback. One-month implied volatility on Swiss franc options rose to its highest level in more than two weeks last week. Volatility measures for the euro, pound and Canadian dollar also increased, and offshore yuan options drew interest as that pair trades near multi-year lows.

Data on large contracts indicate a clear tilt toward dollar puts. On August 21, demand for dollar put options against the euro was roughly 47% greater than demand for dollar calls, based on Depository Trust and Clearing Corporation records covering contracts worth at least $150 million. In Asia, demand has concentrated on shorter-dated options for the Korean won, Thai baht and Singapore dollar.

Market participants have raised concerns that more active Treasury purchases of specific maturities could change expectations for U.S. interest rates and affect how domestic and foreign holders price dollar assets. Traders will be watching upcoming Treasury operations, auction schedules and further guidance from the Treasury for signals on the scale and duration of the buybacks, and how those actions interact with Federal Reserve policy and global capital flows.