The US Treasury could use its nearly $1 trillion General Account at the Federal Reserve to help fund recently announced plans to increase purchases of government bonds, according to two senior Treasury officials.
Using the Treasury General Account (TGA) would give the Treasury greater capacity to influence long-term bond yields. The Treasury last week announced it would double its purchases of off-the-run securities at the long end of the market, raising the minimum from $2 billion to at least $4 billion.
Treasury Secretary Scott Bessent has also said the purchases could exceed the new $4 billion minimum.
TGA could provide additional funding
The Treasury did not initially explain how the purchases would be funded. Many market participants assumed it would sell short-term Treasury bills to finance the operations.
The senior officials did not rule out that approach. Bessent described the operation as a “Treasury Twist”, referring to a strategy in which long-term Treasuries are purchased while short-term debt is issued.
Since the announcement, however, bonds have retreated from their initial rally, pushing yields higher. Some market analysts have questioned how effective the operation would be and whether the Treasury had sufficient resources to influence the market significantly.
Using the TGA could change that perception.
The TGA is essentially the US government’s checking account, held at the Federal Reserve and funded by existing tax collections. Bessent has built the account to about $950 billion, compared with a target of roughly $550 billion to $600 billion under the previous administration.
The officials did not say how much of the account could be used or when such a move might be announced. They also gave no indication that the funds would be used for purposes beyond the off-the-run securities targeted in last week’s announcement.
However, they made clear that the account is considered available for the operation.
Treasury says it does not need Fed support
The size of the TGA is discretionary. During Janet Yellen’s tenure as Treasury secretary, officials said the aim was to maintain enough cash to cover about a week of government needs.
The current Treasury says it manages the account in line with its long-standing cash balance policy.
If the Treasury uses part of the TGA and wants to restore the account to nearly $1 trillion, it would eventually need to sell additional bonds to rebuild its cash balance.
However, allowing the account to fall somewhat lower would not appear to pose an immediate risk. A smaller cash balance would leave the government with less available funds during a potential debt ceiling impasse.
Current estimates suggest the debt limit would not be reached until winter next year or possibly early spring, giving the Treasury time to rebuild the account if necessary.
Even a limited use of the TGA, or simply the expectation that it could be used to purchase government bonds, could influence bond yields.
It could also reduce concerns among some bond market participants that the Federal Reserve might be asked to assist the Treasury. The Fed holds the TGA as a bank, but does not regard it as part of its monetary policy toolkit.
Treasury defends bond-buyback strategy
The Treasury officials also rejected criticism that the surprise announcement had abandoned the department’s long-standing practice of keeping bond sales “regular and predictable” or that it was attempting to manipulate the market.
The enhanced buyback announcement came two weeks after the quarterly refunding announcement, when such information would normally be communicated to markets.
The officials said, however, that there had been no change to the official auction schedules. They also noted that the announcement was made nearly three weeks before the first operation, scheduled for Sept 9, giving markets time to prepare.
The Treasury also outlined its plan for the entire quarter in its Aug 19 announcement.
The officials said it was too early to assess the market impact because the first operation has yet to take place.
Bessent said last week that the Treasury wanted markets to focus on economic fundamentals rather than react to headlines during a period of relatively thin trading.
He also said he expected the fiscal situation to improve when tariff revenue returns after court-ordered refunds are replaced by new tariffs. Senior officials are also expected to meet soon to develop plans aimed at improving the government’s fiscal position.
