The U.S. Treasury is considering utilizing its nearly $1 trillion Treasury General Account (TGA) to finance its recently announced expansion of government bond buybacks, according to two senior Treasury officials [1]. This move follows last week's surprise announcement that the Treasury would double the size of buybacks of off-the-run long-term securities from $2 billion to at least $4 billion, with Treasury Secretary Scott Bessent indicating on CNBC that the operations could be even larger than the new minimum [1].
The Treasury did not specify how it would fund these purchases, leading most market participants to assume the financing would come from selling short-term bills, a strategy reminiscent of the "Treasury Twist" operation, where long-term treasuries are bought and paid for with short-term issuance [1]. However, the possibility of tapping the TGA, which currently stands at approximately $950 billion—well above the Biden administration's stated goal of $550 to $600 billion—could provide the Treasury with significant resources to influence long-term bond yields [1].
Despite the initial market rally following the announcement, bond prices have since retreated and yields have risen, reflecting skepticism among analysts about the effectiveness of the operation and concerns over the Treasury's available resources [1]. The use of the TGA could alter these perceptions, as it is already funded with existing tax collections and is considered available for such operations, though officials did not specify how much of the TGA would be used or when a decision would be announced [1].
Officials emphasized that the TGA's size is discretionary and that running it lower would not pose immediate risks, given that the next debt-ceiling limit is not expected until winter or early spring of next year, allowing time to rebuild the balance if necessary [1].
CONCLUSION
The Treasury's consideration of using its nearly $1 trillion General Account to fund expanded bond buybacks marks a significant potential shift in market operations. While the move could provide substantial firepower to influence long-term yields, market skepticism remains about its effectiveness until further details are announced.