Bessent: US Treasury will stick to its debt auction schedule, despite larger buybacks
Treasury Secretary Scott Bessent announced on Monday that the U.S. Treasury would continue its regularly scheduled auctions of debt, including those for long-dated securities, despite the?move? to increase the buyback size of 10- to 30 year?securities. Bessent responded to a question at a 'news conference' focused on Iran sanctions regarding Treasury's plans moving forward for bond buybacks, including the size of future auctions. He said that Treasury would "continue our regular program" of auctions announced in early august. He said that Treasury has not yet purchased bonds in the expanded buybacks which will begin on September 10, for 10-year and 20-year security. Bessent is a former hedge-fund manager with extensive knowledge of sovereign debt markets and currency markets. Last week, Bessent surprised bond investors around the world by announcing that the Treasury will double its quarterly repurchases after the yields on longer-dated securities?reached their highest levels in almost two decades. Treasury's strategy helped lower yields for 10-year Treasury bonds and 20-, 30-year bonds. This provided relief to the administration from high bond yields which are driving up federal debt servicing costs. By the end of the previous week, the yields for the longer-dated maturities largely reversed the drops. On Monday, they?were modestly down. Bessent warned other countries to cut off business with Iran on Monday, and threatened them with secondary sanctions should they fail to do so. However, he did not impose severe penalties. He said that a "major announcement" regarding a bank was coming later this week. He hasn't indicated where the money for the Treasury Buybacks comes from, but the Treasury General Account at the Federal Reserve is one possible source. The Treasury General?Account at the Federal Reserve is one source of funding. The Treasury, unlike the Fed, cannot create money on demand. It must therefore borrow funds or use existing cash reserves to fund the buybacks. The additional borrowings would have to be at shorter maturities to avoid upsetting the purpose of the buybacks which is to increase liquidity on the market for long-dated bonds. The TGA, or Treasury General Account, is the federal government's checkbook. It pays for government expenses such as federal employee salaries, defense contracts, and Treasury principal and interest obligations. As of last Wednesday, it was worth $940 billion. Treasury beefed up its TGA in order to cover the $166 billion refunds owed to importers following the U.S. Supreme Court ruling earlier this year that a large portion of President Donald Trump’s import tariffs was illegal. In the past year, it averaged $840 billion. This is the highest amount ever outside of the rapid rise during the COVID-19 epidemic. If Democrats win control of Congress after the midterms, a larger TGA would act as a buffer in case they try to leverage a debt limit deadline to get concessions from the White House.
Bessent believes that the increase in yields, which has reached nearly two-decade-highs, is unwarranted and detrimental to the dynamism of the U.S. economy. economy. He also pointed out that the Trump administration plans to cut government spending have driven the U.S. collective IOU to the rest of the world to north of $40 trillion.
Treasury announced last week that it will double its bond buying in the 10- to 30-year segment over the next three months, bringing the total amount of each operation up to $4 billion.
Bessent executed the first joint intervention on the Japanese yen since 15 years earlier this month. He said last week his goal was to maintain liquidity in a market area that is not heavily traded, particularly in August. However, he also had to compete with the large volume of corporate issues at higher yields. This includes artificial intelligence infrastructure.
(source: Reuters)
