US Dollar Faces Yield Pressure as Iran Tensions Revive Safe-Haven Demand
Long-end bond buyback plans may exert downward pressure on Treasury yields and the US Dollar. Rising oil prices and sanctions on Iran may reinvigorate the demand for the US dollar as a safe haven. Maximum economic pressure on Tehran is designed to avert significant military escalation in the Gulf. The US Dollar Index, which compares the value of the US dollar to six major currencies, is currently trading at 98.80 in early European hours on Friday after showing slight increases the day before. The Greenback has declined in tandem with a stable 10-year US Treasury yield at 4.7% as markets respond to Washington’s initiatives aimed at reducing elevated yields via a long-end bond buyback program.
However, US Treasury yields rebounded from Wednesday’s declines on Thursday, notwithstanding remarks from Treasury Secretary Scott Bessent suggesting that expedited debt buybacks might exceed the anticipated $4 billion per issue. Bessent also noted that an upcoming fiscal plan is currently in development, with the US budget deficit expected to have peaked under President Trump. Meanwhile, the demand for the US Dollar as a safe haven may experience a resurgence as oil prices rise amid diplomatic stalemates in the Gulf, thereby amplifying persistent inflation worries and expectations for Federal Reserve interest rate increases. Tensions escalated as Washington readied an initiative dubbed “economic D-day,” designed to impose significant restrictions on Iran’s economy.
Scheduled for formal announcement on Monday, the proposed measures from the US aim to target banks, shipping registries, cash transfers, and smuggling networks. The objective is to sever Tehran’s connections to global markets and to pressure it into negotiations regarding nuclear and regional matters. According to a report, Treasury Secretary Scott Bessent indicated that the administration’s efforts to dismantle Iran’s economic lifelines are expected to reduce the necessity for substantial military intervention. He stated that the application of maximum economic pressure significantly reduces the likelihood of a large-scale kinetic escalation.
OCBC’s Sim Moh Siong cautions that the recent rally in US rates has proved short-lived, noting that “US bond yields resumed their climb, reversing much of the initial reaction to the Treasury’s surprise expansion of its long-end buyback programme.” He frames the move as a “yield reality check,” underscoring lingering concerns over the sustainability of lower long-term borrowing costs in the face of ongoing fiscal and structural pressures.
