U.S. Treasury Secretary Becerra May Use Nearly $1 Trillion TGA to Fund Long Bond Buybacks, Cash Reserves as an Invisible Arsenal
U.S. Treasury Secretary Scott Becerra may utilize nearly $950 billion from the Treasury General Account to fund an expanded government bond buyback program.
The Treasury General Account, the government's main operating account at the Federal Reserve, currently has a balance of about $950 billion, significantly higher than the previous target range of $550 billion to $600 billion. This account has been accumulated from existing tax revenues, and Becerra has significantly expanded it during his tenure. Senior officials state that partial withdrawals will not cause immediate cash management issues.
Last week, the Treasury announced it would at least double the size of the long-end inactive bond buyback program, increasing each transaction from $2 billion to at least $4 billion, with an operation period from September 9 to November 4, targeting securities with maturities of 10 to 30 years. Becerra indicated that the actual size could be larger, referring to this move as a "Treasury reversal operation."
Markets had previously widely expected the buybacks to be financed through the issuance of short-term Treasury bills. Senior officials stated that the General Account could serve as an alternative or supplementary funding source, with the next debt ceiling constraint expected between winter and spring. The liquidity of 30-year bonds has been described as very poor, and long-end yields fell temporarily following the news.
The buyback focuses on improving long-end market liquidity and reducing reliance on the issuance of short-term notes. Funds in the General Account have been accumulated from tax revenues, and once utilized, can directly fund buybacks without immediate new issuances.
Driven by events, long bond buyers and institutional investors benefit from falling yields and improved liquidity, with funds flowing from government cash reserves to bondholders. The stock market gains valuation support from the yield decline, while the General Account buffers itself and future cash management pressures, thereby alleviating short-term debt supply pressures.
Source: Public Information
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Becerra previously served as the London head and Chief Investment Officer at Soros Fund Management, participating in the 1992 short sale of the pound that earned the fund over $1 billion, and profiting about $1.2 billion from shorting the yen in 2013. He founded Key Square Macro Hedge Fund, focusing on global macro trading and currency paths, later serving as Treasury Secretary under the Trump administration and leading the expansion of the debt toolbox.
Utilizing the General Account is akin to directly injecting accumulated tax cash into buybacks, avoiding immediate short-term debt issuance. The motivation is to lower long-term yields to control debt service costs while signaling to the market that current yields do not reflect fundamentals. Resources are being shifted from the government cash account to the secondary market, prioritizing support for long-end liquidity and reducing reliance on short-term financing.
This move is similar to the Fed's "reversal operation" in 2011, which aimed to lower long-end yields by altering the supply-demand structure of Treasury securities of different maturities. Currently, with debt exceeding $40 trillion and long-end sell-offs and liquidity pressures, Becerra is taking proactive measures to expand the Treasury toolbox rather than solely relying on the Fed.
Essentially, this represents a transfer of pricing power. The government is directly intervening in the secondary market through internal cash reserves, attempting to regain control over long-term interest rate pricing. The mechanism involves reducing complete reliance on spontaneous market supply and demand, using pre-accumulated liquidity buffers to counter external yield pressures, shifting debt management from passive issuance to active term structure adjustments.
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