US Treasury to maintain bond suction schedule despite larger buybacks

The US Treasury will proceed with its regular schedule of debt auctions for longer-dated securities while simultaneously expanding its buyback operations, Treasury Secretary Scott Bessent confirmed on Monday. The dual approach aims to address elevated long-term borrowing costs without disrupting the Treasury's core funding operations. The larger buyback operations for 10- and 20-year bonds are scheduled to commence September 10, following an announcement last week that the Treasury would double the size of its quarterly purchases of longer-maturity debt.

The expansion of buyback operations was prompted by a significant rise in long-term Treasury yields to their highest levels in nearly two decades, which has materially increased federal debt-service expenses. When Bessent initially announced the doubled buyback programme, yields initially declined across the 10-, 20-, and 30-year segments of the yield curve, offering temporary relief to the government's refinancing burden. However, much of that decline was subsequently reversed, with long-term yields edging lower again on the day of Bessent's press conference.

The Treasury has not yet executed any securities purchases under the expanded buyback programme and has remained silent on its precise funding methodology. One potential source is the Treasury General Account (TGA), the federal government's operational cash account maintained at the Federal Reserve. As of last Wednesday, the TGA held approximately $940 billion, compared with a 12-month average of around $840 billion. Using existing TGA balances would allow the Treasury to conduct buybacks without issuing additional short-term debt, though it would deplete available federal cash reserves. The elevated TGA balance reflects prior accumulation to cover approximately $166 billion in refunds owed to importers following a Supreme Court ruling that invalidated a significant portion of tariffs implemented during the Trump administration.