U.S. Treasury Secretary Scott Bessent moved quickly to push back after reports that funds in the Treasury General Account (TGA) could be used to finance government bond buybacks. He dismissed the possibility of further expanding the buyback program.
Asked at a press conference whether the Treasury would soon increase the size of its buybacks, Bessent said, "We haven't bought a single bond yet," according to Bloomberg on the 24th, local time. Asked whether the department was considering reducing the size of its debt auctions, he said it would "continue the existing program as is." His comments signaled that there would be no further expansion before the quarterly debt-management plan is announced in early November.
CNBC had earlier reported, citing two senior Treasury officials, that TGA funds held at the Federal Reserve could be used to buy back higher-yielding existing government bonds. Bond dealers had expected the Treasury to fund such purchases by issuing more short-term debt maturing within a year. Last week, after long-term yields climbed to their highest levels in years, the Treasury said it would double the size of its buybacks to at least $4 billion (about 5.5 trillion won) from $2 billion (about 2.8 trillion won). It also set a schedule to at least double its "liquidity support buybacks" of 10- to 30-year bonds starting on the 9th of next month, purchasing up to $14 billion (about 19.4 trillion won) of those maturities by November 4.
The TGA balance stood at $935 billion (about 1,300 trillion won) as of the 20th. The Treasury has maintained a substantial balance as a buffer against expected outlays ranging from Social Security benefits to payments for federal employees and contractors. Treasury officials have this year reviewed options for using surplus cash, including placing some funds in the repurchase agreement, or repo, market. But some market participants concluded there was little practical benefit in creating a new system.
Morgan Stanley Sees Up to $200 Billion; Is Treasury's Cash Policy Shifting?
Morgan Stanley estimated that the funds the Treasury could use to expand buybacks might range from $80 billion to $200 billion (about 111 trillion to 276 trillion won), depending on how "excess" cash is defined. U.S. Treasury yields fell after the CNBC report. As of 7 p.m. Eastern time on the 24th, the 10-year and 30-year yields had each fallen about 4 basis points (1 bp equals 0.01 percentage point) to 4.698% and 5.227%.
Changes to the Treasury's debt auctions, buybacks and cash holdings are typically disclosed only at its quarterly debt-management announcements. As a result, some market participants read Bessent's move last week and the CNBC report as signs that the administration is prioritizing lowering interest rates ahead of the November election. Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, said the move "looks like a very ad hoc attempt to stem a sell-off rather than a considered discussion about cash-balance policy." He put the likelihood of tapping the cash as "very, very low," adding that the buffer is more important now given rising cybersecurity risks.
Some analysts noted that a sudden buyback expansion just two weeks after the release of the tentative quarterly schedule could undermine the Treasury's image as "regular and predictable." Citadel Securities assessed that such attempts amount to "financial repression" that could weaken the dollar and stoke inflation. Lou Crandall, senior economist at Wrightson ICAP, said, "The key point is that the amounts are so small that they fall within the Treasury's normal cash-flow fluctuations."
