United States Treasury Secretary Scott Bessent is eyeing the department's nearly $1 trillion General Account (TGA) to fund expanded buybacks of higher-yielding, older securities, CNBC reported today citing two senior Treasury officials. They did not give a number for how much of the stockpile could be used.
Speculations sparked after Bessent last week said he would expand the country's buyback program after yields on longer-dated maturities hit the highest levels in years, Bloomberg reported.
Treasuries extended gains on the news, with the yield on 10-year bonds falling as much as four basis points to 4.69%, the news agency added.
According to the CNBC report, market participants assumed that the department would issue shorter-dated debt, i.e. one-year bills to fund the purchases, but the cited officials said that tapping the TGA is a possibility.
Known as the US government's “checking account”, the TGA's $935 billion cash pile as on 20 August is held by the Federal Reserve. The account maintains large margins to cushion against government outlays for Social Security and employee and contractor payments, it added.
The sources did not completely rule out Treasury bills, but the report noted that this method would replace one debt with another, while accessing TGA would eliminate such concerns.
The Bloomberg report noted that the US Treasury Department in 2015 imposed a policy of maintaining at least five-days with of expenditures or minimum of $150 billion in the TGA to deal with unexpected disruptions. With US President Donald Trump's second term, there was speculation the rule could be diluted.
The report added that more recently, the Treasury was examining ways to utilise the surplus cash and officials considered parking some money in the market for repurchase agreements.
The Treasury has a decades-long tradition of making changes in how it manages the federal debt only after extensive deliberation internally and with market participants. The principle it’s adhered to — and one endorsed repeatedly by Bessent in a keynote speech last November — is to be “regular and predictable” in its approach, the report added.
Some analysts said that the US Treasury's sudden move to ramp up the buyback program, just two weeks after a quarterly tentative calendar for that program had been released, risked eroding the “regular and predictable” image, the report added. The risk is that investors demand a higher premium to buy Treasuries, especially the longest-dated ones, to account for unexpected future changes in auction sizes.
“The decision to increase long-end buybacks itself was not necessarily radical, but the timing and framing of the decision certainly were,” Lou Crandall, a senior economist at Wrightson ICAP LLC, wrote in a note Monday, 24 August, as per Bloomberg.
The Treasury for years has focused on assuring investors it “would not manipulate the market for its own short-term benefit. That promise went out the window last week,” Crandall added.
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