By David Lawder and Dan Burns
WASHINGTON, Aug 24 (Reuters) – The U.S. Treasury will continue with its regularly scheduled debt auctions, including for long-dated bonds, despite its move to increase buyback sizes of 10- to 30-year securities, Treasury Secretary Scott Bessent said on Monday.
Asked at a news conference focused on Iran sanctions about Treasury’s plans for bond buybacks and auction sizes going forward, Bessent said the department would “continue with our regular program of auctions” announced in early August.
He added that the Treasury hasn’t purchased any bonds yet in the enlarged buybacks, which will start on September 10 for 10- and 20-year securities.
Bessent, a former hedge fund manager with extensive experience in sovereign debt and currency markets, last week surprised global bond investors by announcing the Treasury would double the size of its quarterly repurchases of longer-dated bonds after their yields reached the highest levels in nearly two decades.
The Treasury chief’s tactic helped bring down yields on 10-year Treasury notes and 20- and 30-year bonds for a short time, providing the administration some relief from the high bond yields that are rapidly driving up federal debt service costs. But yields on the longer-dated maturities had largely retraced those drops by the end of the week. They were down modestly on Monday.
Bessent also warned countries on Monday to cut business ties to Iran, threatening them with secondary sanctions if they failed to do so, while stopping short of imposing severe penalties. He warned that a major sanctions announcement related to a bank would happen later this week.
He has not indicated the funding source for the Treasury buybacks, but the Treasury General Account at the Federal Reserve provides one source. Tapping that account would spare the need to finance the buybacks by issuing new, shorter-dated Treasuries, but would eat into the nation’s cash reserves.
Unlike the Fed, the Treasury does not have the ability to create money at will, so it needs to pay for the buybacks from existing cash resources or borrow the funds. Any additional borrowing would need to be done at shorter maturities so as not to upend the goal of the buybacks, which is to boost liquidity in the market for longer-dated bonds.
The TGA is essentially the federal government’s checking account, used to pay for daily government operations like federal worker salaries, defense contracts and Treasury interest and principal obligations. It stood at about $940 billion as of last Wednesday.
Treasury has beefed up the TGA this year in part to pay for some $166 billion of refunds it owes to importers after the U.S. Supreme Court earlier this year ruled a major chunk of President Donald Trump’s import tariffs were illegal. Over the last year it has averaged about $840 billion, the highest ever outside of its rapid run-up during the COVID-19 pandemic.
A bigger TGA could act as a cushion in the event Democrats take control of Congress in the midterm elections and try to use a debt ceiling deadline as leverage to extract concessions from the White House.
INCREASINGLY INTERVENTIONIST APPROACH
Bessent has argued the upswing in yields to nearly two-decade highs was unwarranted against the vibrancy of the U.S. economy. He also pointed to the Trump administration’s plans to curtail government spending that has driven the collective U.S. IOU to the world north of $40 trillion.
In the latest of Bessent’s increasingly interventionist maneuvers, the Treasury last week said it would double its bond buybacks in the 10- to 30-year sector over the next quarter to at least $4 billion per operation.
Bessent, who earlier this month executed the first joint intervention in the Japanese yen in 15 years, said last week that his objective was to support liquidity in an area of the market that is thinly traded, especially in August, while having to compete with a large volume of corporate issuance at higher yields, including for artificial intelligence infrastructure.
(Reporting by David Lawder; Writing by Daphne Psaledakis; Editing by Katharine Jackson and Paul Simao)
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