Rejecting pure "borrowing new to repay old"? The US Treasury may use national cash reserves to support US debt buybacks, putting rules and credibility to the test.

According to Golden Ten Data APP, two senior officials from the US Treasury said in an interview that the Treasury may choose to use part of its cash reserves to fund an expanded plan to buy back high-yielding old bonds.

After long-term US Treasury yields soared to their highest levels in years last week, Treasury Secretary Bessent launched an expanded bond repurchase program. Bond traders originally thought the Treasury would fund these purchases by issuing more short-term debt (including Treasury Bills with maturities of up to one year).

The Treasury may tap the "Treasury General Account" (TGA). As of August 20, the account balance was $935 billion. In the past, the Treasury has kept a significant balance in this account to provide a buffer for anticipated government spending—from Social Security checks to payments to federal employees and contractors.

Driven by this news, US Treasuries extended their gains, with the yield on 10-year government bonds falling by 4 basis points to 4.69% at one point.

The senior officials interviewed by the media did not rule out the possibility of using short-term Treasury Bills to fund the buybacks—essentially, swapping one form of debt for another. Reducing cash reserves can avoid such “issuing new debt to repay old debt” operations. The officials did not specify (if it happens) how much TGA funds might be used.

Back in 2015, the Treasury established a policy to keep in the account at least the equivalent of five days’ worth of expenditures (or a minimum of $150 billion) to prevent being shut out of the debt market due to unexpected disruptions. When the Trump administration came into office, some market participants speculated that the Treasury’s guidelines might change, though such discussions gradually abated over time.

Recently, the Treasury has been exploring other ways to use surplus cash, with officials considering the possibility of depositing some funds in the repo market.

For decades, the US Treasury has followed a tradition of making changes to its management of federal debt only after thorough internal discussions and careful consultation with market participants. The principle the Treasury has always upheld—and which Bessent repeatedly endorsed in a keynote speech last November—is to keep its operations “regular and predictable.”

Some analysts pointed out that, just two weeks after releasing the preliminary quarterly schedule for the program, the Treasury suddenly decided to ramp up buybacks, risking damage to its image of “regularity and predictability.” The risk is that investors, anticipating unexpected changes in future auction sizes, may demand a higher premium to buy US Treasuries (especially long-term bonds).

Lou Crandall, senior economist at Wrightson ICAP LLC, wrote in a report on Monday: “The decision to increase long-term buybacks is not necessarily aggressive in itself, but the timing and framework of this decision are clearly quite aggressive.”

Crandall said the Treasury has focused for years on assuring investors that it “would not manipulate the market for its own short-term benefit.” “That commitment evaporated last week.”