U.S. Treasury to Use Nearly Trillion-Dollar Treasury Account? Bessent Emphasizes Another Bond Buyback on September 9

U.S. Treasury Secretary Besant said on Monday local time that the U.S. Treasury will conduct the next bond buyback operation on September 9 and indicated that related operations will continue thereafter.

Besant stated that the next bond buyback operation will be carried out on September 9, so let's wait and see. He also mentioned that the Treasury will continue to implement the regular Treasury auction plan, "so you'll hear from us again at the beginning of the next quarter."

Besant made these remarks as the market is watching whether the U.S. Treasury will further expand its support for the long-term U.S. Treasury market.

Earlier this Monday, U.S. media cited Treasury officials as saying that the Treasury is considering using approximately $1 trillion from the Treasury General Account (TGA) to fund the recently expanded Treasury buyback program. However, officials did not disclose how much would be used or when it would begin. Reports indicate the TGA currently holds about $950 billion.

Sept 9 Buybacks to Be Enhanced; Besant Says Single Operation May Exceed $400 Million

The September 9 date mentioned by Besant is not a new buyback program announced on Monday, but rather the effective date for the previously announced enhanced long-term Treasury buyback measures from last Wednesday.

On August 19 last Wednesday, the U.S. Treasury announced that the liquidity support buyback operation size for nominal bonds with maturities of 10-20 years and 20-30 years would be at least doubled, raising the cap from $2 billion per operation to at least $4 billion. The Treasury stated that the adjustment will take effect from September 9 and continue until the end of this refinancing cycle, or November 4.

The Treasury explained that the scale was increased in order to provide more liquidity support to the long-term nominal Treasury market. The Treasury has continued to receive numerous high-quality bids at the longer end, indicating strong market participant interest in these operations.

The day after the plan was announced, Besant further left room for expanded buybacks. He said the size of a single long-term bond buyback operation could exceed $4 billion and commented, "This is a relatively inactive market segment," and that the Treasury has a "well-stocked toolbox" in the U.S. bond market.

Besant believes that the market is not paying enough attention to the fundamentals of the U.S. economy and that Treasury yields are not reflecting the fundamentals, especially with "exceptionally poor" liquidity in 30-year U.S. Treasuries.

As for how large the buybacks might be, Besant said at the time they "will depend on conditions," noting that "any fluctuation within 24 hours is just noise," and that the Treasury is "trying to restore balance to a sluggish market."

Therefore, September 9 first means that the previously announced enhanced buybacks officially enter the implementation stage; Besant's remarks that they "might exceed $4 billion" also leave room for actual operation sizes above the previously announced minimum.

Nearly $1 Trillion TGA Could Be a Source of Buyback Funds; Market Reassesses the Toolbox

Earlier on Monday, CNBC reported that the Treasury is considering using a TGA balance of about $950 billion to fund the recently expanded buyback program. Two senior Treasury officials said the TGA is being viewed as a potential funding source for purchasing some non-benchmark government bonds, but no specific amount or timeline has been determined yet.

This information is worth noting because the market's mainstream speculation about the source of Treasury buyback funds had previously centered on funding long-term buybacks by issuing more short-term Treasury bills.

If the Treasury uses this method, it would mean an increase in short-term debt supply and a reduction in long-term supply, effectively reshaping the debt maturity structure and resulting in a fiscal version of "Operation Twist" (QT). The market had also discussed similarities between this and the Federal Reserve’s historical "Operation Twist."

If the Treasury instead uses TGA cash directly for buybacks, it would not be fully dependent on new short-term Treasury issuance to raise buyback funds.

However, a TGA of nearly $1 trillion does not mean the Treasury plans to use nearly $1 trillion to buy Treasuries. Current reports only show TGA is being considered as a potential funding source; the Treasury has not announced the actual amount to be used.

More importantly, the TGA itself is the Treasury's primary operational account at the Federal Reserve, used for government daily receipts and expenditures. The actual money available for buybacks will be constrained by government spending, debt issuance arrangements, and cash balance management targets.

Therefore, for the market, the real focus isn't the TGA's absolute balance, but whether, how much, and at what pace the Treasury will use these funds for long-term buybacks.

Buyback Boost Only Lasts a Day; Long-End Yields Rebound

The immediate backdrop to the Treasury's sudden buyback expansion is that long-term U.S. yields had been elevated for an extended period.

Following the August 19 announcement, Treasury yields initially declined sharply, with markets taking this as an important signal that the Treasury was trying to ease long-end funding pressures.

But the positive effect was short-lived.

Last Thursday and Friday, medium- and long-term U.S. Treasury prices fell for two consecutive days, meaning the boost from expanded buybacks only sustained the market for one day. The focus quickly shifted back to the U.S.'s massive fiscal deficit, long-term debt supply, and inflation pressures.

Last week, media reports on the U.S. Treasury price drop noted that investors believe the new Treasury measures may only temporarily contain rising borrowing costs, and the market's moves highlight skepticism about the effectiveness of the measures. Howard Du, a TD Securities strategist in New York, said that the market does "not fully buy" Besant’s ability to truly suppress long-end yields.

This means that after the buybacks are officially enhanced on September 9, market focus will shift from "whether the Treasury acts" to "whether acting can truly alter long-term supply and demand for Treasuries."

Based on the currently published plan, from September 9 each buyback of 10-20 year and 20-30 year Treasuries will be capped at at least $4 billion. The Treasury has said it will provide more information about the future buyback scale at the next quarterly refunding meeting on November 4.

Thus, September 9 will become the key date for the market to test the real effects of the Treasury's expanded buyback program, while Monday’s TGA news has further stoked the market’s imagination about the Treasury’s future “firepower.”

But regardless whether TGA cash or Treasury bills are used to fund the buybacks, this operation cannot be simply equated with Federal Reserve quantitative easing. What the Treasury can change is the maturity structure of the debt and marginal demand for specific Treasuries, but the overall U.S. fiscal deficit, debt levels, and future financing needs will not disappear.

For long-term U.S. Treasuries, the true determinants of core yields will still be U.S. fiscal conditions, inflation, economic growth, and investor expectations for future Treasury supply.