Treasury plans to use General Account to fund enlarged bond buyback program

The US Treasury Department is turning to its General Account to finance an expanded bond buyback program, with Secretary Scott Bessent announcing a significant increase in the size of operations targeting longer-dated nominal coupon securities. The move comes as the government grapples with 30-year yields that touched 5.31% on August 17, the highest level since 2007.

Starting September 9 and running through November 4, the Treasury will conduct liquidity-support buybacks with a maximum operation size of at least $4 billion. That’s double the previous cap of $2 billion per operation. Bessent hinted the actual amounts could climb even higher.

How the plumbing works

The mechanics are straightforward in concept, if not in scale. The Treasury buys back older, less liquid long-term bonds using cash from the Treasury General Account, the government’s main checking account at the Federal Reserve. To replenish that account, it issues additional short-term bills.

The authority for these buybacks comes from 31 U.S.C. Section 3111, which permits both liquidity-support and cash-management buyback operations. The liquidity-support variety, which this program falls under, is specifically designed to improve trading conditions in the Treasury market by removing older, harder-to-trade securities from circulation.

Scale versus skepticism

Even at $4 billion per operation, the total buyback volume for the September-through-November window is estimated at roughly $14 billion for the quarter. Analysts remain skeptical that operations of this size can significantly alleviate the ongoing pressure on yields, especially in the context of robust debt issuance and prevailing economic conditions.

The mechanics of funding these buybacks through short-term bill issuance also introduce their own wrinkle. Because each dollar is sourced directly from tax receipts or new debt issuance, there is no expansion of the Federal Reserve’s balance sheet akin to traditional quantitative easing.

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