Bessent tapping Treasury’s rainy-day fund for buybacks isn’t a ‘bazooka’ to get markets to move his way

Treasury Secretary Scott Bessent has announced that the U.S. Treasury will proceed with its regular debt auction schedule, including long-dated bonds, despite the recent decision to increase the size of buybacks for 10- to 30-year securities. During a news conference addressing Iran sanctions, Bessent clarified that the department will adhere to the regular program of auctions announced earlier in August.

The Treasury has not yet executed any bond purchases in the enlarged buybacks, which are set to commence on September 10 for 10- and 20-year securities. Bessent, with extensive experience in sovereign debt and currency markets, doubled the size of quarterly repurchases of longer-dated bonds last week after their yields reached the highest levels in nearly two decades.

This move helped lower yields on 10-year Treasury notes and 20- and 30-year bonds for a brief period, providing some relief from the soaring federal debt service costs. However, yields on longer-dated maturities largely reverted to their prior levels by the end of the week. Bessent warned countries against engaging in business with Iran and threatened secondary sanctions if they failed to comply, though he did not impose severe penalties.

He also hinted at a major sanctions announcement related to a bank later in the week. The Treasury General Account at the Federal Reserve serves as the source for the Treasury buybacks, which could deplete the nation's cash reserves if financed. To avoid this, the Treasury would need to borrow funds at shorter maturities. The TGA, essentially the federal government's checking account, stands at approximately $940 billion.