Emerging FX gains from the Bessent put and Treasury buybacks fade, leaving carry trade returns mixed as investors reassess policy support.
The Bessent put and Treasury buybacks were dollar-negative catalysts, lifting EM FX. As the buyback boost fades, the dollar's downside pressure eases, leaving the greenback mixed against EM currencies.
Treasury buybacks lower long-term yields, reducing the dollar's yield advantage and weakening demand for USD. As the buyback boost fades, the dollar may stabilize.
The Bessent put is seen as a cap on dollar strength because policy support encourages risk-taking and carry trades, which tend to weaken the dollar.
Treasury buybacks initially compressed long-end yields, supporting EM FX via a weaker dollar. With the buyback boost fading, yields are drifting higher, and the 'Bessent put' is no longer providing fresh momentum.
Treasury buybacks reduce the supply of long-dated debt, which typically pushes yields lower. The fading of this effect allows yields to rise again.
The Bessent put is the market's belief that Treasury Secretary Bessent will backstop fixed income, limiting downside in bond prices. Its influence is waning as the buyback boost fades.
Emerging market currencies initially gained as the Bessent put burnished carry trade appeal. The fading Treasury buyback boost is now leaving the EM FX trade mixed, with some currencies holding gains and others giving back ground.
The Bessent put and Treasury buybacks improved the appeal of carry trades, attracting flows into higher-yielding EM currencies.
The initial policy boost is fading, so while some currencies continue to benefit from carry demand, others are stalling as momentum wanes.
Emerging market currencies initially gained as the Bessent put burnished carry trade appeal, but the Treasury buyback boost is fading, leaving the trade mixed. Investors are weighing the durability of the policy backstop against waning momentum in fixed income flows.
The Bessent put refers to market expectations that Treasury Secretary Scott Bessent will intervene or implement policies to support asset prices, effectively acting as a put option for risk assets.
Treasury buybacks reduce long-end yields, weakening the dollar and improving funding conditions for carry trades, which boosts EM currencies.
It means some EM currencies are still gaining while others stall, reflecting fading momentum from the initial policy boost.