Treasury weighs cash account for expanded bond buybacks

The US Treasury is considering tapping its roughly $950 billion cash balance to support purchases of longer-dated government bonds, potentially giving Secretary Scott Bessent greater scope to counter pressure in the Treasury market.

The Treasury General Account, or TGA, is being treated as a possible source of cash for purchases of off-the-run securities, although officials have not specified how much could be deployed or when a decision might be announced. The account is the federal government’s main operating cash account at the Federal Reserve.

The consideration follows the Treasury’s decision last week to at least double the size of liquidity-support buybacks in the 10-to-20-year and 20-to-30-year maturity sectors. Operations that had been capped at $2 billion will rise to at least $4 billion each from September 9 through November 4.

Bessent has also signalled that individual purchases could eventually exceed $4 billion, opening the possibility of a more forceful response if long-term borrowing costs remain elevated.

The prospect of using the TGA attracted immediate attention in financial markets because it would differ from the usual approach of financing buybacks through additional Treasury issuance. Bond yields moved lower on Monday after the possibility emerged, with the benchmark 10-year yield slipping by several basis points and the 30-year yield also retreating.

Federal Reserve data show the TGA has been running close to the $1 trillion mark. Its average balance stood at about $954 billion in the week ended August 19, while the balance on August 19 itself was about $936 billion. Treasury financing assumptions published this month envisage an end-September cash balance of $950 billion.

That pool of money is large compared with the scheduled buyback operations, but it should not be viewed as an unrestricted $1 trillion fund available solely for market intervention. The TGA finances the government’s day-to-day obligations, and Treasury normally maintains a substantial cash buffer to meet payments and protect against disruptions in debt issuance.

Using part of the account for buybacks could nevertheless affect financial conditions differently from a programme funded by selling fresh Treasury bills. A TGA drawdown transfers government cash into the banking system and can increase commercial bank reserves at the Federal Reserve. That liquidity effect could strengthen the immediate market impact of the purchases.

Any effect could later be reversed if Treasury subsequently issued additional debt to rebuild the cash balance. The ultimate consequences would therefore depend on the size and duration of any drawdown, the maturity profile of subsequent issuance and the pace at which Treasury restored the account.

The debate comes as Washington seeks to contain renewed stress at the long end of the government bond market. Thirty-year Treasury yields climbed above 5.3% this month, reaching levels not seen since 2007, as investors demanded greater compensation for inflation risk, fiscal deficits and heavy future borrowing.

The Treasury market has expanded sharply alongside federal borrowing. Marketable Treasury debt runs into tens of trillions of dollars, meaning even multibillion-dollar buybacks represent only a small share of outstanding securities. The programme is primarily designed to improve liquidity in older, less actively traded bonds rather than permanently remove government debt.

Those limitations have fed scepticism over whether buybacks alone can substantially suppress long-term yields. The first announcement produced a rally in bonds, but much of the decline in yields was quickly reversed as investors returned their attention to the fiscal outlook, inflation and the supply of new debt.

Treasury currently expects to borrow $739 billion in privately held net marketable debt during the July-September quarter, based on its $950 billion end-quarter cash assumption. It projects another $628 billion of borrowing during the October-December quarter while allowing the cash balance to decline to $850 billion.

Markets are also watching whether Treasury increasingly favours short-term bills while supporting longer-dated bonds through repurchases. Such a strategy would effectively alter the maturity composition of federal debt, reducing some long-duration supply while placing greater reliance on short-term financing.