US considers deploying $950 billion from state treasury for bonds

The US Treasury is considering using its nearly $950 billion government account, the so-called Treasury General Account (TGA), to finance large-scale buybacks of long-term government bonds, two senior department officials told CNBC. The move would give the department considerably more leeway to influence yields on long-term bonds, following an announcement last week that already surprised markets.

In brief:

• The Treasury is considering using the $950 billion TGA for buybacks of long-term government bonds.
• Secretary Bessent already doubled the size of individual buybacks last week, from $2 billion to at least $4 billion.
• Markets reacted sceptically: after a brief rally, bond yields rose again.

Bessent doubles buybacks and calls it a ‘Treasury Twist’

Last week, the department surprised markets with the news that it is doubling the size of individual buybacks of so-called off-the-run bonds with maturities of ten to thirty years, from $2 billion to at least $4 billion. Treasury Secretary Scott Bessent told CNBC that the operations could potentially become even larger than that new minimum.

Bessent described the approach as a ‘Treasury Twist’, a reference to a technique in which long-term government bonds are bought and financed through the issuance of short-term debt. That implies the department is simultaneously selling short-term bonds. The department initially did not disclose exactly how the buybacks would be financed. Most market participants assumed this would be done through the issuance of short-term Treasury bills, which the senior officials did not rule out.

According to CNBC, the officials would not say how much of the TGA might be deployed or when an announcement would follow. They did make clear that the account is considered available for this purpose.

Market scepticism after initial rally

Following last week’s announcement, bond prices initially rose, but that effect quickly faded. Yields on long-term bonds subsequently moved higher again, partly due to analyst doubts about the effectiveness of the operation and questions over whether the department’s resources are large enough.

Deploying the TGA could potentially remove that scepticism. The TGA is in effect the US government’s current account, held at the Federal Reserve and funded with tax revenue. Bessent has built up the account to approximately $950 billion, considerably more than the target of around $550 to $600 billion that applied under the previous administration.

A temporary reduction of the TGA carries little direct risk for the time being. Estimates suggest the US debt ceiling will not be reached again until the winter of next year or possibly early 2028, providing sufficient time to replenish the account if necessary. At the same time, even a limited deployment of the TGA could already influence bond yields.

Officials also pushed back against criticism that the department has abandoned its usual policy of predictable and regular bond sales. The first planned buyback operation is not scheduled until 9 September, giving markets ample time to prepare.