Bessent Stops Short of New Bond Measures Amid Report on Cash Use

Treasury Secretary Scott Bessent refrained from any further signals on revamping US debt management on Monday, following a report that his department could draw down some of its cash pile to fund buybacks of higher-yielding older securities. “We haven’t bought a single bond yet,” Bessent said when asked in a press conference Monday about whether he’s going to soon increase the buybacks. The Treasury chief last week unleashed an expanded buyback program after yields on longer-dated maturities hit the highest levels in years. Asked Monday whether he’s also looking at reducing auction sizes for bonds, he said the department will “continue with our regular program” of sales. He indicated no changes would come ahead of the next so-called quarterly refunding announcement at the start of November. Earlier, CNBC reported that the department could use the Treasury General Account — cash parked at the Federal Reserve, referred to as the TGA — for buybacks, citing two senior departmental officials. Bond dealers had assumed the Treasury would fund those purchases by issuing more shorter-dated debt — including bills, which mature in up to a year. The TGA balance stood at $935 billion as of Aug. 20. The Treasury in the past has maintained a significant balance in order to provide a cushion against expected outlays by the government, ranging from Social Security checks to payments for federal employees and contractors. Using Cash Officials this year have been looking at ways of using any surplus cash, eyeing the possibility of sticking some funds in the market for repurchase agreements. That option has been dismissed by some market participants as not likely to be worth the effort of establishing such a program. Morgan Stanley estimates that, depending on the definition of “excess” cash, the Treasury might have $80 billion to $200 billion to fund bigger buybacks. “There’s a meaningful likelihood that the Treasury does modernize its cash balance policy,” said Martin Tobias, a US interest-rate strategist at Morgan Stanley. Treasuries extended gains on the buyback-funding report, with the yield on 10-year bonds falling about 4 basis points, to 4.69% as of 1:57 p.m. in New York. Yields are still not far from the highest level since Bessent took office — about 4.75%, hit last week. In the past, major changes regarding auctions, buybacks and cash holdings were only unveiled in the Treasury’s quarterly announcements on debt management. Bessent’s move last week, and Monday’s CNBC report, suggested to some market participants that the administration is instead prioritizing efforts to pull down yields, as the November election looms. While Wednesday’s buyback announcement saw Treasuries rally, they surrendered the move the following day, something that might have prompted officials to look at what more they could do, said Tobias at Morgan Stanley. The Treasury didn’t respond to a request for comment on the potential use of cash. The senior officials cited by CNBC didn’t rule out using bills to fund buybacks — which would essentially replace one type of debt with another. Reducing cash would get around that. The officials wouldn’t say how much, if any, of the TGA would be used. Back in 2015, the Treasury instituted a policy of keeping at least five days’ worth of expenditures, or a minimum of $150 billion, in the account in case unexpected disruptions locked it out of debt markets. When the Trump administration came to office, some market participants speculated that the department’s guidelines could shift, although such discussion waned over time. “This seems like a very slapdash attempt to try to stem the selloff, versus a specifically thought-out conversation around cash balance policy,” said Blake Gwinn, head of US rate strategy at RBC Capital Markets. He added that he thought the chance of using cash was “very, very low,” and that, if anything, a buffer is more important now amid rising risks of cyber attacks. The Treasury has a decades-long tradition of making changes in how it manages the federal debt only after extensive deliberation internally and with market participants. The principle it’s adhered to — and one endorsed repeatedly by Bessent in a keynote speech last November — is to be “regular and predictable” in its approach. Some analysts said the sudden move to ramp up the buyback program, just two weeks after a quarterly tentative calendar for that program had been released, could erode the “regular and predictable” image. The risk is that investors demand a higher premium to buy Treasuries, especially the longest-dated ones, to account for unexpected future changes in auction sizes. The Treasury’s efforts amount to “financial repression” that risks weakening the dollar and fueling inflation, according to Citadel Securities. That would happen as lower yields reduce the appeal of the dollar and potentially lift import prices, according to Nohshad Shah, Citadel’s head of EMEA fixed-income sales. In its announcement Wednesday, the Treasury said it would at least double its “liquidity support buyback operations” for 10- to 30-year securities, starting from Sept. 9. Its calendar for the period between then and Nov. 4 indicated up to $14 billion in buybacks for debt of those maturities. Amounts on that scale wouldn’t involve a massive shift in the TGA, although Bessent on Thursday emphasized that the operations could be ramped up. “The basic point is the amounts are so small they’re just normal cash flow variations for the Treasury,” Lou Crandall, a senior economist at Wrightson ICAP LLC, said in an interview.