The US Treasury announced it will double the size of its quarterly buybacks of longer-dated bonds from $20 billion to at least $40 billion beginning September 9, focusing on 10- to 30-year securities. The first expanded buyback operation is scheduled for September 10 [1, 2, 3, 4].
Treasury Secretary Scott Bessent said the agency will continue its regular auction schedule, including sales of long-dated bonds, and does not plan to reduce issuance to push down yields. He commented, "We will continue with our regular programme of auctions. We haven't purchased any bonds yet but will start enlarged buybacks on September 10 for 10- and 20-year securities" [1].
As of August 24, the Treasury had not yet begun any purchases under the expanded buyback program but plans to start operations on September 10 [1, 2, 3, 4].
To fund the larger buybacks, the Treasury is considering using part of the nearly $940 billion balance in the Treasury General Account (TGA) held at the Federal Reserve. Using TGA funds could avoid issuing additional short-term debt but would draw down cash reserves that support daily government operations like salaries and debt payments [1, 5, 2, 3, 4].
The Treasury cannot create money like the Federal Reserve and must pay for buybacks either from existing cash or by issuing short-term debt to maintain liquidity in long-term bonds [1, 2, 3, 4]. There is uncertainty over exactly how much of the TGA balance will be used, with market estimates varying from $80 billion to $200 billion as "excess cash" potentially available for buybacks [5, 2, 3, 4].
Following the announcement, yields on 10-, 20-, and 30-year Treasury bonds briefly fell but mostly returned to prior levels, reflecting cautious market reaction [1, 2, 3, 4]. Major Wall Street banks including Deutsche Bank, Goldman Sachs, Wells Fargo, and Citadel Securities forecast the larger buybacks might improve liquidity but will not substantially lower long-term yields. They cited persistent fiscal deficits, inflation pressures, and supply factors as primary influences [2, 3, 4].
Skepticism remains about the buybacks’ long-term efficacy and the Treasury’s capacity to sustain the expanded program given funding constraints [5, 2, 3, 4]. The expanded buyback effort will cover seven operations between September and November and runs through November 4, when further decisions are expected [2, 4].
The Treasury’s next key update on bond issuance and buyback plans is anticipated with the quarterly refinancing announcement on November 4, 2023 [2, 1].
