The Treasury Department could opt to draw down some of its cash pile to fund expanded buybacks of higher-yielding, older securities, CNBC reported Monday, citing two senior Treasury officials.
Treasury Secretary Scott Bessent last week unleashed an expanded buyback program after yields on longer-dated maturities hit the highest levels in years. Bond dealers assumed that the Treasury would fund those purchases by issuing more shorter-dated debt — including bills, which mature in up to a year.
CNBC reported that the department could use the Treasury General Account — cash parked at the Federal Reserve, referred to as the TGA. That balance stood at $935 billion as of Aug. 20. The Treasury in the past has maintained a significant balance in order to provide a cushion against expected outlays by the government, ranging from Social Security checks to payments to federal employees and contractors.
Treasuries extended gains on the news, with the yield on 10-year bonds falling as much as four basis points to 4.69%.
The senior officials cited by CNBC didn’t rule out using bills to fund buybacks — which would essentially replace one type of debt with other debt. Reducing cash would get around that. The officials wouldn’t say how much, if any, of the TGA would be used.
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Back in 2015, the Treasury instituted a policy of keeping at least five days’ worth of expenditures, or a minimum of $150 billion, in the account in case unexpected disruptions locked it out of debt markets. When the Trump administration came to office, some market participants speculated that the department’s guidelines could shift, although such discussion waned over time.
Most recently, the Treasury had been examining other ways to use surplus cash, with officials looking at the potential to park 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.
Some analysts said that the 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 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.
The Treasury for years has focused on assuring investors it “would not manipulate the market for its own short-term benefit,” said Crandall. “That promise went out the window last week.”
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