Hedge funds are stepping up bearish positions against the US dollar as investors assess Treasury Secretary Scott Bessent’s plans to contain elevated US borrowing costs and manage the government’s debt profile, according to a report by Bloomberg.
Dollar selling accelerated last week after Bessent announced that the Treasury would at least double its purchases of longer-dated US government bonds through its buyback programme. The move helped drive the greenback to its biggest one-day decline in almost three weeks and prompted heavier selling across currency markets.
The dollar was little changed in Asian trading on Monday, but positioning data and activity in the options market point to growing investor concern over its outlook.
Bessent’s approach has prompted speculation that the Treasury could become more directly involved in managing the level and shape of US interest rates. Investors concerned about such a shift argue that greater intervention in the bond market could undermine confidence in the dollar.
Bessent has referred to the strategy as a “Treasury twist”, reflecting the potential for the Treasury to buy longer-maturity debt while issuing more short-term securities. The approach is intended to ease pressure at the longer end of the Treasury curve, where borrowing costs have remained elevated.
The prospect of a more active Treasury role is also showing up in the foreign-exchange options market. The cost of protecting against a fall in the dollar over the coming month relative to positioning for a rise has reached its highest level since February, according to a Bloomberg measure.
The shift has been particularly pronounced in Swiss franc options, with one-month implied volatility rising to its highest level in more than two weeks last week. Volatility measures for the euro, pound and Canadian dollar have also increased as institutional investors have shown greater interest in structures that benefit from a weaker US currency.
Options positioning provides another indication of the bearish tilt. On August 21, demand for dollar put options against the euro was 47% higher than demand for dollar calls, based on Depository Trust and Clearing Corporation data covering contracts worth at least $150m.
In Asia, demand has been concentrated in shorter-dated options involving the Korean won, Thai baht and Singapore dollar. Offshore yuan options have also attracted interest as the currency pair trades close to multi-year lows.
