The US Treasury is considering using its Treasury General Account (TGA) — the federal government's cash account at the Federal Reserve, currently holding nearly $1 trillion — to help finance its recently announced purchases of longer-dated Treasury bonds, according to CNBC.

Markets initially assumed the bond-buying program would be funded by issuing more short-term bills, consistent with Treasury Secretary Scott Bessent's description of the operation as a "Treasury Twist." The nickname echoes the Federal Reserve's "Operation Twist," first employed in 1961 and revived in 2011–2012, in which the central bank sold shorter-dated securities and bought longer-dated ones in an effort to push down long-term yields — an effort that ultimately covered roughly $667 billion in substitutions after a mid-2012 extension. Separately, the Treasury has conducted regular buyback operations of older, less-liquid securities since 2024, although those were designed to support market liquidity rather than to influence the level of long-term rates. Using debt management to shape the level of long-term rates would nonetheless go beyond the "regular and predictable" approach that has traditionally guided Treasury issuance, which focuses on financing the government's borrowing needs at the lowest cost over time rather than targeting particular maturities.

However, senior Treasury officials indicated that the TGA is also available as a funding source and did not rule out using it.

Using the TGA would significantly increase the Treasury's ability to influence long-term yields, because the funds are already available from tax receipts and do not require new debt issuance. The funding choice also matters for market plumbing: spending down the TGA injects reserves into the banking system as federal payments flow out, whereas issuing bills to raise the same cash first draws money out of the private sector before it is spent. That could address market skepticism about whether the buyback program is large enough to meaningfully lower yields — a question with implications well beyond the Treasury market, since long-term yields anchor borrowing costs across the economy, from mortgage rates to corporate credit, and the federal government's own interest bill has climbed as more debt rolls over at higher rates.

Officials did not specify how much of the TGA might be used or when a decision could be announced, but they emphasized that the option is on the table. Because the TGA balance is well above the levels maintained under the previous administration, the Treasury has room to draw it down without creating immediate funding risks. The TGA serves as the government's main operating account at the Fed, from which federal payments are made, and its balance typically moves with tax receipts and borrowing activity. Large swings in the account are not unprecedented — it was sharply drawn down during the 2023 debt-limit standoff and then rebuilt with a wave of bill issuance — meaning any sizable buyback-funded drawdown would eventually need to be replenished as well.

The original report described the officials' remarks as another "verbal" intervention to suppress the rise in long-term Treasury yields, which had reversed their initial drop after the buyback announcement on Wednesday. It added that the development is supportive of "debasement" trades — long gold, long bitcoin and short US dollar — and could make the Jackson Hole event, the Federal Reserve's annual economic policy symposium held in Wyoming in late August, even more interesting.

Source: ForexLive