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