US Treasury Department May Tap Nearly $1 Trillion Treasury Account? Bessent Emphasizes Bond Buyback Resumes on September 9
- Key Takeaway: The U.S. Treasury Department will implement its expanded long-term Treasury buyback operations on September 9, raising the per-operation cap to at least $4 billion, and may tap nearly $1 trillion in TGA funds as a source for the buybacks, aiming to ease pressure on long-end yields, though market confidence in the actual effectiveness remains uncertain.
- Key Elements:
- On August 19, the Treasury Department announced it would raise the per-operation cap for nominal Treasury buybacks in the 10-20 year and 20-30 year tenors from $2 billion to at least $4 billion, effective from September 9 through November 4.
- Treasury Secretary Bessent indicated that individual buyback operations could exceed $4 billion, noting that liquidity in 30-year Treasuries is "especially scarce," and that operation sizes would "depend on conditions."
- The Treasury is considering tapping its TGA (Treasury General Account), which holds approximately $950 billion, to fund the buybacks, though no specific amount or timing has been determined. Previously, market consensus expected the Treasury to finance these operations through short-dated debt issuance.
- If TGA cash is utilized, the Treasury would not need to rely entirely on new short-term Treasury issuance, potentially creating a debt maturity structure adjustment effect similar to a fiscal version of "Operation Twist."
- Treasury yields briefly fell following the August 19 announcement, but long-dated bond prices declined for two consecutive days last Thursday and Friday, with the positive impact lasting only one day—suggesting the market is "not fully convinced" of the measure's effectiveness.
- While the TGA balance approaches $1 trillion, the funds actually available for buybacks are constrained by government spending, debt issuance schedules, and cash balance management targets—meaning not all of it is usable.
- September 9 will serve as a key inflection point for testing the actual effectiveness of the buyback program. The Treasury will provide more details on buyback scale at its November 4 quarterly refunding announcement, but these operations should not be equated with quantitative easing, as long-end yields remain determined by fiscal conditions, inflation, and economic growth.
Original Author: Li Dan
Original Source: Wallstreetcn
U.S. Treasury Secretary Scott Bessent said on Monday local time that the U.S. Treasury will conduct its next bond buyback operation on September 9, hinting that the department will continue to push forward with related operations.
Bessent stated that the next bond buyback operation will be implemented on September 9, and "stay tuned." He also noted that the Treasury will continue its regular schedule of Treasury auctions, "so you will hear from us early next quarter."
Bessent's remarks come as the market is watching whether the Treasury will further expand its support for the long-end Treasury market.
Earlier on Monday, U.S. media cited Treasury officials saying that the department is considering using funds from the Treasury General Account (TGA), which holds nearly $1 trillion, to finance its recently expanded Treasury buyback program. However, officials did not disclose how much of the funds would ultimately be used or when the deployment would begin. Reports indicate that the TGA currently stands at approximately $950 billion.
Enhanced Buybacks Take Effect September 9; Bessent Says Individual Operations May Exceed $4 Billion
September 9, as mentioned by Bessent, does not refer to the Treasury announcing a new buyback program on Monday, but rather the date when the expanded long-duration Treasury buyback measures announced last Wednesday officially take effect.
On Wednesday, August 19, the U.S. Treasury announced it would at least double the size of its liquidity support buyback operations for nominal Treasuries in the 10- to 20-year and 20- to 30-year maturities, raising the maximum size per operation from $2 billion to at least $4 billion. The Treasury clarified that the adjustment would take effect on September 9 and remain in place until the end of the current quarterly refunding period, which concludes on November 4.
At the time, the Treasury explained that the increase in buyback size was intended to provide additional liquidity support to the long-duration nominal Treasury market, as it has consistently received a large volume of high-quality offers in longer-dated buyback operations, indicating strong participation from market participants.
The day after the Treasury announced the plan, Bessent left further room for expanding buyback operations. He said the size of a single long-duration Treasury buyback could exceed $4 billion, adding, "This is an illiquid market segment," and that the Treasury has a "full toolbox" in the U.S. Treasury market.
Bessent believes that the market has not paid sufficient attention to the fundamentals of the U.S. economy, and that Treasury yields do not reflect those fundamentals—particularly the 30-year Treasury, where liquidity is "especially scarce."
When asked how large the buyback operations could ultimately become, Bessent said "it will depend on conditions," and noted that "any volatility within 24 hours is just noise," as the Treasury is "trying to restore balance to a weakened market."
Therefore, September 9 first and foremost marks the official execution phase of the previously announced expanded buybacks; Bessent's earlier remarks that operations "may exceed $4 billion" leave room for actual operation sizes to surpass the minimum levels previously disclosed.
Nearly $1 Trillion TGA Could Become Funding Source for Buybacks; Market Reassesses the 'Toolbox'
A CNBC report earlier on Monday stated that the Treasury is considering using the TGA, which holds nearly $950 billion, to fund the recently expanded bond buyback program. Two senior Treasury officials said the TGA is viewed as a potential source of funds that could be used to purchase certain off-the-run Treasuries, though no specific amount or timeline has been determined.
This news is particularly noteworthy because the mainstream market assumption regarding the funding source for Treasury buybacks had previously been the issuance of more short-dated Treasury bills to finance purchases of long-dated bonds.
If the Treasury were to adopt that approach, it would mean increasing short-dated supply while reducing long-dated supply, creating a fiscal version of a "twist operation" in the debt maturity structure. The market had previously drawn parallels between Treasury operations and the Fed's historical "Operation Twist."
If the Treasury instead directly uses TGA cash for buybacks, it would mean the department does not have to rely entirely on new short-dated issuance to raise funds for the purchases.
However, a TGA balance of nearly $1 trillion does not mean the Treasury plans to spend nearly $1 trillion buying Treasuries. Current reports only indicate that the TGA is seen as a potential funding source; the Treasury has not yet announced the actual amount to be deployed.
More importantly, the TGA itself is the Treasury's primary operating account at the Federal Reserve, used for the government's daily receipts and payments. The funds the Treasury can actually use for buybacks will also be constrained by factors such as government spending, debt issuance schedules, and cash balance management targets.
Therefore, what truly matters for the market is not the absolute balance of the TGA, but whether the Treasury will draw on these funds, how much it will use, and at what pace it will conduct long-dated Treasury buybacks.
Buyback Boost Lasts Only One Day; Long-End Yields Move Higher Again
The immediate backdrop to the Treasury's sudden expansion of long-dated buybacks was the persistently elevated level of long-term U.S. Treasury yields.
Following the August 19 announcement, Treasury yields fell noticeably, with the market interpreting the move as an important policy signal that the Treasury was attempting to ease funding pressure at the long end.
But that positive effect did not last long.
On Thursday and Friday of last week, U.S. medium- and long-term Treasury prices fell for two consecutive days, meaning the boost from the expanded buybacks lasted only one day. The market shifted its attention back to the massive U.S. fiscal deficit, long-term debt supply, and inflation pressures.
When media outlets reported on the pullback in Treasury prices last week, they noted that investors believed the Treasury's new measures could only temporarily curb rising borrowing costs, with market moves highlighting investor skepticism about the effectiveness of the new measures. Howard Du, a strategist at TD Securities in New York, said the market is "not fully convinced" that Bessent can truly keep long-end yields in check.
This also means that after the buyback expansion officially takes effect on September 9, the market's focus will shift from "whether the Treasury will act" to "whether its actions can truly change the supply-demand dynamics of long-dated Treasuries."
Based on the Treasury's current plan, starting September 9, the maximum size for each buyback operation in the 10- to 20-year and 20- to 30-year maturities will be raised to at least $4 billion. The Treasury has also previously stated that it will provide more information on future buyback sizes at the next quarterly refunding meeting on November 4.
Therefore, September 9 will be an important milestone for the market to test the actual effectiveness of the Treasury's expanded buyback program, while Monday's news regarding the TGA further fuels market speculation about the scale of the Treasury's future "ammunition."
However, whether the buybacks are funded through TGA cash or short-dated Treasury bill issuance, these operations cannot simply be equated with Federal Reserve quantitative easing. What the Treasury can change is the debt maturity structure and marginal demand for specific Treasury securities, while the overall fiscal deficit, debt levels, and future funding needs will not disappear as a result.
For long-dated Treasuries, what ultimately determines the yield anchor will remain the U.S. fiscal position, inflation, economic growth, and investors' assessment of future Treasury supply.
