Following reports that the Treasury might use part of its cash reserves (TGA accounts) to repurchase less liquid U.S. Treasuries, Treasury Secretary Scott Bentsen has not issued any further signals regarding reforms to U.S. debt management.
The latest update shows that at a press conference on Monday, when asked whether bond buybacks would soon increase, Bentsen stated, “We haven’t purchased any bonds yet.”
Last week, amid long-term bond yields reaching their highest levels since the subprime crisis, Bentsen launched an expanded bond buyback program. At the same time, he emphasized that the Treasury would “continue executing its regular bond issuance plan,” suggesting no changes before the next quarter’s refinancing plan is announced in early November.
As of August 20, the Treasury’s TGA account balance stood at $935 billion. Historically, the Treasury has maintained substantial fiscal balances to serve as a buffer for anticipated government spending, including Social Security payments and disbursements to federal employees and contractors.
This year, officials have been exploring ways to deploy surplus cash, including considering using some funds for market-based repo operations. However, some market participants believe such a program could be more costly than beneficial.
Morgan Stanley estimates that based on the definition of “excess” cash, the Treasury may have between $80 billion and $200 billion available for larger-scale bond buybacks.
According to Morgan Stanley’s Tobias, although U.S. Treasury prices rose (yields fell) following Wednesday’s announcement of the buyback program last week, the market reversed course the next day—potentially prompting officials to reconsider what additional measures they might take.
A senior official cited by CNBC did not rule out the possibility of using bill funding for stock buybacks—an approach essentially swapping one form of debt for another. Reducing cash reserves could help avoid this scenario. The official declined to disclose how much TGA funding, if any, might be used.
Blake Gwyn, head of U.S. interest rate strategy at RBC Capital Markets, said, “This looks like a rushed move to stem selling pressure, rather than a thoughtful discussion about cash balance policy.” He added that he considers the likelihood of deploying cash “very, very low,” and emphasized that maintaining a certain buffer is now more important given rising cybersecurity risks.
