"Bessent to Put Up to $1 Trillion Into Bond Buybacks, Using Government Emergency Cash in TGA"

[Financial News]  


Up to nearly $1 trillion, or about 1,380 trillion won, is expected to be deployed for the "doubling of long-term Treasury buybacks" that U.S. Treasury Secretary Scott Bessent had announced.
CNBC reported on the 24th (local time), citing two senior Treasury Department officials. The plan is to use the Treasury General Account (TGA), the government's emergency cash reserve, to buy long-term Treasuries. Because Treasury yields move inversely to prices, higher demand pushes yields lower.

Earlier, on the 19th, Bessent said he would double the size of long-term Treasury purchases from $2 billion to at least $4 billion to curb the rise in long-term yields. In an interview with CNBC, he also said the actual scale of the operation could be larger than initially announced.
He did not say at the time where the funds would come from, but now Treasury is said to be considering tapping the general account. Experts believe that if the TGA is used, it should be enough to rein in rising market interest rates.
Until now, Treasury had been expected to raise money by selling short-term Treasuries and use the proceeds to buy long-term bonds. Senior Treasury officials had not ruled out that possibility, and Bessent also called the market intervention "Operation Twist" in his CNBC interview. That meant issuing short-term debt to buy long-term debt.
But long-term Treasury yields rose again on the 20th, the day after Bessent's announcement, suggesting Treasury had concluded that this approach would not work. Markets were skeptical because of doubts about the effectiveness of "Operation Twist" and concerns that Treasury's funding would be limited.

The picture changes if the TGA is tapped.
The TGA is the government's main checking account, from which funds can be withdrawn at any time. The money is deposited with the Federal Reserve System (Fed) as a reserve for emergencies. It is set aside from existing tax revenue as the government's emergency cash held at the central bank.
The Trump administration has significantly expanded the TGA. It had stood at about $550 billion to $600 billion under the Biden administration, but it has grown to around $950 billion since Bessent took over the Treasury Department.
Senior Treasury officials did not say how much of the TGA would be used for long-term bond buybacks or when an announcement would be made.
Even if the TGA is drawn down repeatedly, there would be no immediate problem. The only issue would be the lack of emergency cash available if the government hits the debt ceiling.
Expectations that the government would use emergency funds to stabilize the market sent Treasury yields sharply lower.
The 30-year Treasury yield fell 0.045 percentage point to 5.231%, while the benchmark 10-year yield dropped 0.034 percentage point to 4.704%.

[email protected] Song Kyung-jae Reporter