US Treasury to stick to debt auction schedule despite bigger buybacks, Bessent says

The U.S. Treasury will continue with its ⁠regularly ⁠scheduled debt auctions, including for long-dated bonds, despite its ⁠move to increase buyback sizes of 10- to 30-year securities, Treasury Secretary Scott Bessent said on Monday.

Asked at a ​news conference focused on Iran sanctions about Treasury’s plans for bond buybacks and auction sizes going forward, Bessent said the department would “continue with our regular program of auctions” announced in early August.

He ‌added that the Treasury hasn’t purchased any bonds ‌yet in the enlarged buybacks, which will start on September 10 for 10- and 20-year securities.

Bessent, a former hedge fund manager with extensive experience in sovereign debt and currency ⁠markets, last week surprised ⁠global bond investors by announcing the Treasury would double the size of its quarterly repurchases of longer-dated ​bonds after their yields reached the highest levels in nearly two decades.

The Treasury chief’s tactic helped bring down yields on 10-year Treasury notes and 20- and 30-year bonds for a short time, providing the administration some relief from the high bond yields that are rapidly driving up federal debt service costs. But yields on the longer-dated maturities had largely retraced those drops by the end ​of the week. They were down modestly on Monday.

Bessent also warned countries on Monday to cut business ties to Iran, threatening them with secondary sanctions if ⁠they ⁠failed to do so, while stopping short ⁠of imposing severe penalties. He ​warned that a major sanctions announcement related to a bank would happen later this week.

He has not indicated the funding source for the Treasury buybacks, ​but the Treasury General Account at the Federal ⁠Reserve provides one source. Tapping that account would spare the need to finance the buybacks by issuing new, shorter-dated Treasuries, but would eat into the nation’s cash reserves.

Unlike the Fed, the Treasury does not have the ability to create money at will, so it needs to pay for the buybacks from existing cash resources or borrow the funds. Any additional borrowing would need to be done at shorter maturities so as not to upend the goal of the buybacks, which is to boost liquidity in the market for longer-dated bonds.