The U.S. Treasury could use part of its nearly $1 trillion cash balance at the Federal Reserve to help finance a larger programme of government bond purchases, potentially giving the department greater influence over long-term borrowing costs at a time when rising yields are unsettling financial markets.
Two senior Treasury officials, according to CNBC, said the department considers its General Account, or TGA, available to support the recently announced purchases, although they declined to say whether any of the funds would actually be used, how much could be deployed or when a decision might be announced.
The possibility adds a new dimension to Treasury Secretary Scott Bessent’s plan to increase purchases of older, less actively traded government securities. Treasury last week said it would double its minimum purchases of off-the-run securities at the long end of the yield curve to at least $4 billion from $2 billion. Bessent has indicated that the operations could ultimately be larger than that minimum.
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The Treasury did not specify how the purchases would be financed when it announced the programme, prompting most market participants to assume that the department would issue additional short-term Treasury bills while buying longer-dated securities.
Bessent described the approach as a “Treasury Twist”, borrowing the name from earlier operations in which the government or Federal Reserve buys longer-term bonds while financing those purchases through short-term issuance.
The potential use of the TGA changes the calculation because it would allow the Treasury to deploy cash that has already been collected rather than immediately raising an equivalent amount through new bill issuance. The TGA is effectively the federal government’s checking account at the Federal Reserve. It is funded primarily through tax receipts and other government revenues and is used to meet federal payment obligations.
Bessent has built the balance to about $950 billion, well above the roughly $550 billion to $600 billion level that Treasury officials targeted under the Biden administration.
The size of the account is discretionary, meaning Treasury has some flexibility over how much cash it holds. Under former Treasury Secretary Janet Yellen, officials described their objective as maintaining enough cash to cover roughly a week of government needs. The current Treasury describes its policy as maintaining a balance consistent with its long-standing cash-management approach.
That gives Bessent some room to reduce the balance without creating an immediate funding problem.
A lower TGA balance would, however, leave the government with a smaller cash buffer in the event of a debt-ceiling confrontation. Current estimates suggest the next debt limit would not become binding until winter 2027 or potentially early spring, providing Treasury time to rebuild the account if necessary.
Even a relatively modest drawdown could therefore have significance for markets if investors believe Treasury is willing to use its cash reserves as part of its strategy to manage the supply and composition of government debt.
That possibility has become relevant because the Treasury’s buyback programme has so far struggled to convince some investors that it will have a meaningful effect on long-term yields.
Treasury securities sold off after an initial rally following last week’s announcement, pushing yields higher. Market participants have questioned whether Treasury’s planned purchases are large enough to materially alter the enormous supply of U.S. government debt and whether the programme can address the underlying factors driving long-term yields higher.
Using the TGA could strengthen the credibility of the operation by giving Treasury another source of financing beyond additional bill issuance. It could also reduce speculation that the Federal Reserve might eventually be asked to assist the Treasury.
The Fed holds the TGA as the government’s banker but does not regard the account as part of its monetary policy toolkit. A Treasury-funded operation using its own cash would therefore maintain a clearer separation between debt management and monetary policy.
The Treasury officials also rejected suggestions that the announcement represented a departure from the department’s long-standing commitment to making debt issuance “regular and predictable.”
The enhanced buyback announcement came two weeks after the quarterly refunding statement, when details of Treasury’s borrowing plans are normally communicated to the market. That timing prompted criticism that the department had surprised investors and potentially encouraged speculative trading.
Treasury officials said there had been no change to the government’s official auction schedules. They also pointed out that the first enhanced buyback operation is not scheduled until Sept. 9, giving investors nearly three weeks to adjust to the plan. The department also disclosed its plans for the entire quarter in its Aug. 19 announcement, rather than providing only a one-off intervention, they said.
Bessent has stated that the objective is not to manipulate markets but to improve the functioning of the Treasury market and prevent temporary trading conditions from distorting prices.
“The intent is to get the market to focus on the fundamentals and not trade the headlines during … a quiet period in a thin market,” Bessent told CNBC. “So we are trying to keep the market in equilibrium.”
The intervention comes as long-term Treasury yields have risen sharply. The 10-year yield has moved above 4.7%, while the 30-year yield has climbed above 5.2%, increasing borrowing costs for the government, companies and households.
Higher long-term yields have also become a major concern for equity investors because they increase the discount rate used to value future corporate earnings and raise the cost of financing large capital-intensive projects, including the enormous infrastructure investments associated with artificial intelligence.
The Treasury’s move therefore has implications beyond the bond market. A successful reduction in long-term yields is expected to ease financial conditions more broadly, while an unsuccessful intervention could bolster investor concerns about the government’s borrowing requirements and fiscal outlook.
Bessent has sought to reassure investors that the administration’s longer-term fiscal position can improve as tariff revenues increase. He told CNBC that he expects deficit conditions to improve once tariff revenue returns following court-mandated refunds and new tariff collections begin to flow through.
He also said senior officials would soon meet to develop measures aimed at improving the fiscal situation.
That fiscal backdrop remains central to the bond market’s concerns. Treasury buybacks can change the composition of government debt and potentially improve liquidity in specific parts of the yield curve, but they cannot by themselves eliminate the need for the U.S. government to finance large deficits.
Investors are increasingly focused not only on the Federal Reserve’s interest-rate policy but also on the amount of debt Treasury must issue, and the compensation investors require to absorb it.
If Treasury uses the TGA, it could temporarily reduce the need for additional financing and give the department greater flexibility in executing its buyback strategy. But maintaining the account at a lower level would eventually require rebuilding its cash balance through future borrowing or government receipts.