US Treasury May Tap $950 Billion Reserve to Calm Markets

Washington may soon buy back more of its own debt. According to CNBC, the U.S. Treasury is considering tapping into its account at the Federal Reserve, which holds about $950 billion, to increase its long-term bond buybacks. This operation could temporarily inject liquidity into the markets.

Key Points

• The U.S. Treasury is exploring the use of its Fed account, filled with about $950 billion, to finance expanded long-term debt buybacks.
• The envelopes per operation for the 10-20 year and 20-30 year segments will double, from $2 billion to at least $4 billion, with the possibility of going higher according to Scott Bessent.
• Drawing cash from the TGA recreates bank reserves and removes duration from the market, two effects similar to quantitative easing.
• Since the Fed halted its balance sheet reduction, the TGA balance has become one of the main liquidity indicators monitored by crypto desks.

The TGA (Treasury General Account) is the main operating account of the federal government with the Fed. Its balance currently hovers around $950 billion, compared to a target of $550 to $600 billion under the previous administration. However, this amount is not fully available: the Treasury keeps a significant cushion to cover its expenses and budgetary surprises.

Officials interviewed by CNBC believe that part of this liquidity could finance the buyback program relaunched in May 2024. No additional amounts or timelines have been communicated yet.

On August 19, the Treasury had already announced the doubling of buybacks dedicated to bonds maturing between 10 and 30 years. From September 9 to November 4, their cap will increase from $2 billion to at least $4 billion in nominal value per operation.

Scott Bessent even indicated that the amounts could be raised depending on market conditions. The Treasury officially presents these operations as a means to support the liquidity of older issues, known as off-the-run.

These securities are less traded than the latest bonds issued. Their accumulation immobilizes part of the balance sheets of financial intermediaries and can amplify tensions when investors flee long maturities.

A Liquidity Support, but Not a True QE

When it spends the money held in the TGA, the Treasury transfers funds to the private sector and increases, all else being equal, bank reserves. A withdrawal of long-term debt can also reduce the duration that investors have to absorb and temporarily relieve yields.

However, the comparison with quantitative easing must be nuanced. In a QE, the Fed creates reserves to buy bonds and increases its balance sheet. Here, the Treasury is using already established cash. And if it later replenishes its TGA through new issuances or tax revenues, the initial injection will be partially or fully recaptured.

The program also remains modest compared to the approximately $32 trillion of negotiable debt. The Treasury initially planned up to $38 billion in liquidity buybacks for the entire quarter, while net issuances remain significantly higher. Its own projections actually anticipated a TGA of $950 billion by the end of September, followed by a possible peak around $1,050 billion by the end of October.

For Bitcoin, the use of the TGA could represent a potentially favorable signal, but not a guarantee of an increase. A sustained decline in the account would temporarily increase available liquidity, but the effect will depend on the scale of the buybacks, their financing, and the evolution of long rates. The upcoming TGA figures and the quarterly refinancing on November 4 will reveal whether Washington is preparing a simple technical adjustment or a real offensive against bond tension.

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