Treasury Secretary Scott Bessent is considering using the Treasury General Account (TGA), currently near $950 billion, to help finance an expansion of bond buyback operations aimed at stabilizing long-term Treasury yields. The Treasury recently surprised markets by doubling the size of its buybacks of longer-term, off-the-run securities from $2 billion to at least $4 billion, with the potential for even larger sums. However, the Treasury initially did not specify how it would fund these purchases, leading most in the market to assume short-term bill sales would cover the costs.

Senior Treasury officials revealed that tapping the TGA, the government's primary operating cash account held at the Federal Reserve, could provide the Treasury with significant firepower to support these buybacks. The sizable balance in the TGA, built up from tax collections and currently far exceeding previous targets set under the Biden administration, may allow the Treasury to intervene more aggressively in bond markets without immediately issuing new debt. Officials have not committed to the timing or amount of TGA usage, nor indicated whether it would be used beyond purchasing off-the-run securities.

By potentially using the TGA, the Treasury could alleviate concerns in the bond market regarding the effectiveness of the buyback program, which had seen yields initially drop then rebound due to skepticism over the government’s capacity for intervention. The move would also avert the need to involve the Federal Reserve directly in purchasing securities, preserving the Fed’s independence from monetary policy tools, since the Fed treats the TGA as a bank account rather than a market operation instrument. This distinction is important to maintain clear boundaries between fiscal and monetary policy.

The Treasury emphasized that the increased buyback announcement, made nearly three weeks before the first operation slated for September 9, does not alter scheduled regular auctions and adheres to established practices. Bessent framed the efforts as a way to keep the market focused on fundamentals during a typically slow trading period, with expectations for fiscal improvements fueled by forthcoming tariff revenues. The Treasury remains cautious, balancing the use of large cash reserves against the need to maintain preparedness for potential debt ceiling negotiations expected next year.