Dollar Auctions Continue Despite New Buyback Structure
Treasury Secretary Scott Bessent stated on Monday that regular Treasury auctions for U.S. debt will carry on as scheduled, following the announcement of increased buybacks for longer-dated securities.
During a press conference, Bessent detailed a plan aimed at imposing “economic asphyxiation” on Iran through secondary sanctions targeting its trading partners. When questioned about possible reductions in the size of upcoming auctions for long-term debt or other potential actions from the Treasury’s toolkit to lower yields, he affirmed, “We will maintain our regular auction program. You can expect to hear from us again at the start of the next quarter.” He also noted, in response to a follow-up inquiry, “We haven’t purchased a single bond yet.”
Bessent also mentioned that the next auctions for longer-dated Treasurys, including the 10-year note and 20- and 30-year bonds, are not planned until mid-September. This timing means the new buyback structure won’t take effect until after September 9.
The adjustment, announced on August 19, raises the Treasury’s maximum buyback authority from $2 billion per operation to at least $4 billion, which will act as a floor rather than a cap. This change is intended to enable buybacks to adapt to market conditions.
This new structure is expected to be in effect until at least November 4, after which the Treasury will provide additional details regarding future buyback sizes. The announcement indicated that this increase aims to enhance liquidity in long-term sectors that show consistent interest from market participants, as indicated by significant volumes of high-quality offers during past buyback operations.
Bessent remarked that the recent announcement resulted in a brief drop in yields for the 10-year Treasury note, as well as 20- and 30-year bonds, though those declines largely reversed as the week progressed. Yields saw a slight decrease on Monday.
He explained that the larger buybacks should support liquidity in a less actively traded segment of the market, especially within the 30-year sector. Additionally, longer-dated Treasurys are in competition with substantial corporate bond issuances at elevated yields, particularly in the context of an AI-driven market environment.
Higher Treasury yields can place fiscal strain on the federal government, leading to increased interest payments necessary to service the national debt. Notably, the U.S. gross national debt recently surpassed $40 trillion for the first time.
While the Treasury Department’s announcement did not specify the funding source for the buybacks, a report from Reuters suggested that the Treasury General Account (TGA) at the Federal Reserve could provide a source. Utilizing the TGA would eliminate the need for issuing new, shorter-dated Treasurys, although it would reduce the nation’s cash reserves.
The TGA functions as the federal government’s checking account, facilitating daily operations such as employee salaries and various financial obligations. Last Wednesday, the TGA balance was around $940 billion. The Treasury has increased the TGA balance this year partially to cover approximately $166 billion in tariff refunds following a Supreme Court decision that invalidated a significant aspect of former President Donald Trump’s tariff policies.
In the past year, the TGA has averaged about $840 billion, representing the highest level outside of the significant increases observed during the COVID-19 pandemic.
