On August 19, the U.S. Treasury announced it would raise the limit on single repurchase agreements of long-term Treasury bonds from $2 billion to at least $4 billion. The dollar index fell 0.85% that day, its biggest single-day drop in three weeks. The offshore yuan appreciated nearly 200 points, briefly touching 6.7279 from below 6.74.
On August 19, the dollar index fell as much as 0.85% during the day, marking its biggest single-day drop in three weeks and hitting its lowest level since mid-May. The offshore yuan market fluctuated accordingly. That evening, the offshore yuan exchange rate briefly fell below 6.74 before quickly rebounding to around 6.7279, appreciating nearly 200 points from its intraday low, and ultimately closing above 6.73. Meanwhile, the yuan's central parity rate against the dollar was set at 6.7418, an increase of 51 basis points from the previous trading day.
On the same day, the dollar fell against all major currencies. The Swiss franc and Swedish krona saw the largest gains, while the yen also recorded a significant strengthening. The market is witnessing a broad-based weakening of the US dollar.
The direct trigger for this round of dollar weakness stems from a policy adjustment by the US Treasury Department. This policy adjustment is occurring against the backdrop of sustained selling pressure in the US long-term Treasury bond market.
According to data released by the US Treasury Department on August 18, the yield on the 30-year US Treasury bond reached 5.31% on August 17, the highest level since June 2007.
Treasury bond yields and prices have an inverse relationship; higher yields mean lower bond prices. The market's sell-off of long-term US Treasury bonds is the direct cause of the rising yields.
Analysts believe that the reasons for the continued rise in US long-term Treasury bond yields include: market concerns about the US fiscal situation, the continued expansion of the federal government's debt, and uncertainty about future inflation trends.
The direct impact of rising long-term Treasury bond yields is that the financing costs for future US government bond issuance will further increase.
Data previously released by the US Treasury Department shows that federal government interest payments reached $104 billion in July, second only to Medicare and Social Security spending in federal government expenditures. Since 2026, monthly federal government interest payments have steadily climbed from $76 billion in January to $107 billion in May, and have remained above $100 billion ever since.
On August 19th local time, the U.S. Treasury announced adjustments to the size of its liquidity support repurchase operations for long-term nominal interest-bearing Treasury bonds.
According to the announcement, the previous maximum size for each operation was $2 billion; the adjusted size will be at least $4 billion per operation, covering maturities of 10-20 years and 20-30 years.
Market analysts believe that this move by the U.S. Treasury aims to alleviate the recent selling pressure on the long-term U.S. Treasury market, while simultaneously signaling to investors that the Treasury is closely monitoring bond market volatility.
Following the announcement of the Treasury's expanded repurchase program, the U.S. long-term Treasury market rebounded, with long-term yields showing a significant decline. The U.S. dollar index subsequently fell.
