Washington considers using $1T from Treasury to suppress bond yields

The US Treasury Department is eyeing nearly $1 trillion sitting in its own checking account as a tool to push down long-term bond yields. The plan: use the Treasury General Account to fund buybacks of 10- to 30-year government bonds.

With federal debt now exceeding $40 trillion and 30-year Treasury yields climbing to nearly 5.3%, Washington is reaching for solutions that don’t require Congress to do anything about the deficit.

The mechanics of the Treasury twist

The TGA, which functions as the federal government’s primary operating account, currently holds between $950 billion and $1 trillion. Treasury Secretary Scott Bessent’s team announced on August 19 that it would at least double the minimum size of its liquidity-support buyback operations. The floor moves from $2 billion to $4 billion per operation, with the door open for even larger amounts.

These operations focus specifically on 10- to 30-year securities. The program is slated to kick off on September 9. Treasury officials have been deliberately vague about precisely how much of the TGA they intend to deploy and over what timeframe.

This approach has been described as a variant of the “Treasury Twist,” a strategy that reshapes the maturity profile of outstanding government debt without changing its total size. The original Operation Twist dates back to the Kennedy administration, when the Fed sold short-term securities and bought long-term ones to flatten the yield curve. This version skips the Fed entirely and uses the Treasury’s own cash reserves.

Early results: modest at best

The initial market reaction to the announcement was underwhelming. Yields on 10-year and 30-year Treasury notes declined by roughly 3.5 to 4.5 basis points. Gold rallied on the news.

Treasury sources have indicated that earlier, smaller-scale buyback efforts produced only brief yield relief before the market reverted. The hope is that larger operations, backed by the substantial firepower of a nearly $1 trillion account, will have a more durable effect.

The deficit elephant in the room

The federal government is sitting on more than $40 trillion in debt and running persistent budget deficits. Using cash reserves to buy back bonds doesn’t reduce the debt. It doesn’t reduce the deficit. When the TGA balance drops, the Treasury eventually has to replenish it by either collecting more tax revenue or issuing new securities, which adds to supply and potentially pushes yields right back up.

For borrowers across the economy, the immediate effect could be modestly positive. Lower long-term Treasury yields tend to filter through to mortgage rates, corporate bond pricing, and other lending benchmarks.

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