Long-dated Treasury yields fell on 24 August after CNBC reported, citing two senior Treasury officials, that the department could tap its near $1trn Treasury General Account (TGA) to help fund its expanded government bond purchases. 10-year Treasury yields dropped more than 3bps to 4.70%, while 30-year yields shed more than 4bps to 5.23%.
The market move follows the Treasury's announcement last week doubling its buybacks of long-dated securities from $2bn to at least $4bn per operation, with the inaugural transaction scheduled for 9 September. While buybacks do not automatically amount to monetary easing, the liquidity impact hinges on two primary variables: how the operations are funded and their total scale, as 9fin analyzed last week.
TGA as an alternative funding channel
The Treasury initially described the repurchases as a "Treasury Twist": buying long-dated bonds and paying for them via short-term bill issuance. With the Fed’s overnight reverse repurchase facility (RRP) balance hovering near zero, a bill-funded operation likely functions as a liquidity-neutral debt exchange that leaves overall bank reserves unchanged.
However, utilizing the TGA as an additional funding source alters the transmission mechanism. The TGA represents the Treasury’s major cash repository at the Fed. Bolstered by recent tax collections,...
