The US Department of the Treasury could utilize its Treasury General Account (TGA), valued at nearly $1 trillion, to finance its plan for treasury bond buybacks, according to two senior officials cited by the American network CNBC. The utilization of the TGA would grant Secretary of the Treasury Scott Bessent significantly greater firepower to influence long-term yields on US bonds and could alter the balances within the sovereign debt market.
Bond buybacks doubled
The Treasury surprised financial markets last week by announcing that it is doubling the scale of buybacks of older long-term government securities, raising the target from $2 billion to at least $4 billion. Scott Bessent told CNBC that these operations could potentially expand beyond the new minimum threshold of $4 billion. However, the US Department of the Treasury had not clarified how it would finance these purchases, leading most market participants to assume it would issue short-term Treasury bills to fund the buybacks. Treasury officials did not rule out that scenario, with Bessent describing the strategy as a "Treasury Twist," referencing practices by past administrations or the Federal Reserve where long-term debt is purchased using proceeds from short-term issuances.
The $950 billion TGA
Deploying the TGA could, however, upend market projections regarding the true firepower of the Treasury. The TGA essentially operates as the checking account of the US government, functioning as a cash buffer maintained at the Federal Reserve, with its funds originating from collected tax revenues. Bessent has built the TGA balance up to approximately $950 billion, compared to the target of roughly $500–600 billion established during the Joe Biden administration. While officials did not disclose how much capital could be deployed or when a formal announcement might occur, they made clear that TGA funds are considered available for these specific purchases.
Fuel for bonds without Fed assistance
Utilizing even a small fraction of the TGA could carry a major market impact, as it would reinforce the view that the Treasury possesses greater intervention capacity than investors initially calculated. If the Treasury uses part of its reserves and subsequently seeks to restore the TGA back toward $950 billion, it would need to issue additional bonds to replenish those funds. However, a temporary drawdown of the TGA does not appear to create immediate risks, though the drawback would be a reduced cash cushion for the federal government in the event of a renewed showdown over the debt ceiling. Current estimates indicate that the debt limit will not pose a challenge before late winter or early spring of next year, providing adequate time to replenish the account.
A game-changer for yields
The bond market initially reacted positively to the buyback announcement, but the rally quickly lost momentum as bond yields moved higher. The reversal was driven by investor skepticism over whether the Treasury possessed sufficient firepower to meaningfully impact the broader market. The potential deployment of the TGA changes this landscape, as even the implicit recognition that the Treasury is willing to tap its nearly $1 trillion account to purchase government debt could influence yields. The yield on the 10-year US Treasury stood at 4.708% on Monday morning.
Manipulation scenarios rejected
Officials simultaneously rejected criticisms suggesting that the surprise announcement of increased buybacks signals a departure from the government's traditional policy of being "regular and predictable" in bond issuances, or that it represents an attempt to manipulate the market. They maintained that none of the formal auction schedules have been altered, noting that the first buyback operation is set for September 9—nearly three weeks after the announcement—giving markets ample time to prepare. Bessent stated that the Treasury's objective is to preserve market stability and encourage a focus on economic fundamentals rather than news-driven volatility during periods of low liquidity. Furthermore, the US Treasury Secretary expects the fiscal outlook to improve as tariff revenues recover following the replacement of court-overturned measures with new duties, while top administration officials are expected to unveil a plan to improve overall fiscal metrics shortly.
Drop in US bond yields
Yields on US government bonds declined on Monday following the CNBC report revealing that the US Department of the Treasury could tap the nearly $1 trillion Treasury General Account (TGA) to fund its program to support sovereign debt markets. The yield on the 10-year US Treasury fell by 4 basis points to 4.70%, while the 30-year yield similarly dropped 4 basis points to 5.23%. The 30-year yield had climbed the previous week to levels unseen since 2007, highlighting the severity of the ongoing pressure on the US sovereign debt market.
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