The U.S. Treasury is weighing whether to tap its roughly $950 billion General Account to help fund an expanded bond buyback program, according to two senior Treasury officials cited by CNBC. The disclosure sent the 10-year Treasury note yield down 4 basis points to 4.7% on Monday, while the 30-year yield retreated 4 basis points to 5.23% after reaching its highest point since 2007 last week.
The Treasury General Account functions as the federal government's primary operating account at the Federal Reserve. Treasury Secretary Scott Bessent built the balance to near $950 billion through existing tax collections, well above the $550 to $600 billion level the prior administration had targeted. The account is essentially the government's checking account, a rainy day fund of sorts held at the Federal Reserve.
Last week, the Treasury surprised markets by announcing it would at least double the maximum size of per-operation bond purchases for longer-dated securities, raising the ceiling from $2 billion to at least $4 billion for the 10-to-20-year and 20-to-30-year portions of the market. Bessent described the approach on CNBC as a "Treasury Twist," a reference to a government or Federal Reserve operation where long-term Treasurys are bought and paid for with short-term issuance. The window for those larger operations is set to begin September 9 and close November 4.
Most market participants had assumed the buybacks would be funded through new short-term bill sales. The senior officials did not rule that approach out, but made clear the General Account is considered an available funding source as well. They did not specify how much of the account might be used or when any announcement could be made.
After last week's initial announcement, bonds rallied briefly before retreating. Yields climbed back as analysts questioned whether the program was large enough to meaningfully shift the balance of supply and demand in what is a $32 trillion market. The potential use of the General Account could change that perception, since it would give the Treasury considerably more firepower to influence long-term bond yields without needing to issue additional short-term debt.
Officials said they do not view a partial drawdown of the account as creating a near-term cash management problem. The next debt-ceiling constraint is not expected until sometime between next winter and early spring, which would leave time to rebuild the balance if needed. The officials indicated there was no suggestion the account would be used beyond purchases of the off-the-run securities that were the focus of last week's announcement.
The report arrived as the annual Jackson Hole Symposium got underway, with markets watching for Federal Reserve Chair Kevin Warsh's keynote address expected Friday. Price pressures remain elevated and the federal debt load sits at $40 trillion.
"The Treasury's intervention in the bond market raises the importance of Warsh's Jackson Hole comments as the real problem was that as yields rose, the dollar dropped, which is abnormal," said Richard Reyle, chief investment officer at Questar Capital Partners. "Interest rates may be the single most important thing in our economy right now."
Before Warsh speaks, markets will also take in the July core PCE reading and the second-quarter GDP revision, both due this week.
