The US Treasury may use the Treasury General Account, whose balance is close to one trillion dollars, to fund the expanded government bond buyback program announced last week, CNBC reported on the 24th, citing two senior Treasury officials. Using the TGA would give the Treasury a powerful tool to influence long-term interest rates. On the 19th, the Treasury surprised markets by announcing it would at least double the size of liquidity-support purchase operations for longer-dated nominal coupon securities, from two billion dollars per operation to at least four billion dollars. However, the Treasury did not specify how the purchases would be funded, and many market participants had assumed they would be financed by issuing short-term Treasury bills. A senior Treasury official did not rule out that possibility. Since the expansion was announced, government bond prices initially rose but then fell back, and yields climbed. One factor behind that was skepticism among many market analysts about the effectiveness of the operations and the Treasury's limited funding capacity. Using the TGA could change that view. The officials declined to say how much of the TGA would be used or when an announcement might come. They did not suggest it would be used for purchases beyond the securities covered by last week's announcement. Meanwhile, asked about the Treasury's plans for future bond buybacks and auction sizes, Treasury Secretary Bessent said the Treasury intends to expand buybacks of government bonds with remaining maturities of ten to thirty years while continuing regular scheduled auctions, including for long-term bonds, as planned. He added that because the expanded operations begin on September 10, no government bonds have yet been purchased under the measure. Bessent did not specify the funding source for the Treasury's bond buybacks, but the TGA held at the Federal Reserve will be one source. Using that account would eliminate the need to issue new short-term government debt to fund the buybacks, but it would draw down the nation's cash reserves. The TGA is essentially the federal government's checking account, used for day-to-day government operating payments such as federal employee salaries, defense contracts, and Treasury interest and principal payments. As of the 19th, its balance was about nine hundred forty billion dollars.
Using TGA to fund buybacks could lower long-term yields, but current skepticism and yield climb suggest negative impact on bond prices, thus yields up.
