Wall Street pours cold water on the US Treasury: Even with a trillion-dollar Treasury account, buybacks may struggle to lower long-term Treasury yields

After news emerged that the U.S. Treasury Department might tap its Treasury General Account (TGA) with nearly $1 trillion to support Treasury buybacks, Wall Street institutions did not turn notably more bullish on long-term U.S. Treasuries as a result.

Deutsche Bank believes that if the Treasury ultimately uses the TGA to provide funds for the expanding buyback program, the impact on bank reserves and short-term Treasury issuance will likely be “essentially zero.” Goldman Sachs and Wells Fargo further point out that buybacks alone are unlikely to reverse the upward trend in long-term Treasury yields unless the U.S. government also addresses the ever-expanding fiscal deficit and inflationary pressures.

This means that even if the Treasury has nearly $1 trillion in cash “ammunition,” what the market truly cares about is not how much debt the Treasury can buy, but whether buybacks can change the fundamental factors driving long-term yields higher.

Deutsche Bank: TGA Funding for Buybacks May Have “Virtually No Impact” on Reserves and Short-Dated Supply

On Monday, June 24th (U.S. Eastern time), CNBC reported that the Treasury Department is considering tapping its TGA, which is approaching $1 trillion, to provide funds for an expanding Treasury buyback program. The report, citing two senior Treasury officials, stated the Treasury may use part of its cash reserves to repurchase older, higher-yielding Treasuries, but no specific size or timeline has been set.

This news quickly triggered market discussions about the impact of Treasury operations on system liquidity.

However, Deutsche Bank believes that if the Treasury actually chooses to use the TGA, the overall impact on bank reserves and short-term Treasury issuance would likely be largely offsetting.

Deutsche Bank strategist Steven Zeng said it remains unclear whether the Treasury intends to reduce the TGA balance permanently, thus using these funds for additional buybacks, or to temporarily draw down the TGA and later replenish it by issuing more short-dated Treasury bills.

If it is the former, after the TGA declines, Treasury funds would flow into the financial system, possibly impacting bank reserves to some extent; but this would also mean the Federal Reserve may reduce its future reserve management purchases (RMP) accordingly.

If it is the latter, the Treasury is merely shifting the timing of short-term note issuance, essentially altering the timing of short-term supply rather than the total amount.

Therefore, whichever approach is taken, Deutsche Bank believes the net effect will likely roughly cancel out.

Zeng also indicated that the Treasury is unlikely to provide further clarity on the arrangements—"deliberately maintaining ambiguity may be intentional."

This implies the market should not overinterpret the scale of the TGA itself—the near $1 trillion is merely the Treasury’s account balance, not the amount it intends to devote to buybacks.

Goldman Sachs: Even an Expanded Buyback Program Is Unlikely to “Reset” Long-Term Rates

Compared to Deutsche Bank's analysis from a liquidity and funding perspective, Goldman Sachs and Wells Fargo focus directly on whether buybacks can actually suppress long-term yields.

Bloomberg cited an August 21 research note by Goldman strategists George Cole and William Marshall, stating that expanded buybacks of longer-term Treasuries by the Treasury Department do not address the main recent drivers of long-end volatility.

Goldman believes that even with further expansion of buyback programs, the buybacks themselves are unlikely to meaningfully reprice long-term interest rate levels.

This is because the factors pushing up long-term Treasury yields currently are not merely a lack of market liquidity, but also include the U.S. fiscal deficit continuing to swell, ongoing Treasury supply pressure, and inflation risks.

In other words, Treasury buybacks can remove some existing long-term debt from the market, but if investors’ concerns about the U.S. fiscal deficit and inflation remain unchanged, long-term Treasuries will continue facing significant upward yield pressure.

Goldman’s assessment is broadly consistent with recent U.S. Treasury market trends.

After the U.S. Treasury announced last Wednesday that it would at least double the size of long-dated Treasury buybacks, yields on 10-year and 30-year Treasuries briefly declined, but quickly rebounded. Bloomberg previously reported that the 30-year Treasury yield on Thursday climbed back to 5.26%, essentially erasing all declines since the buyback expansion was announced.

This means the market has voted with actual trades, showing a relatively cautious stance regarding the Treasury’s initial ramp-up actions.

Wells Fargo and Other Institutions Remain Skeptical; Long-End Yields Still Facing "Structural" Pressure

Interest rate strategists at Wells Fargo also believe that Treasury buybacks are unlikely to reverse the upward trend in long-term yields.

In their view, today’s long-term yields are facing broader structural pressures—not merely short-term liquidity issues that can be addressed by Treasury buybacks.

Citing multiple institutional views, the media reports that, in addition to Goldman and Wells Fargo, Société Générale, Deutsche Bank, and Scotiabank also expect the U.S. yield curve to steepen further, meaning long-term yields will keep rising relative to short-term yields.

This reflects persistent market concerns about the U.S. fiscal position.

Especially as the U.S. government will still need to issue large amounts of Treasuries for financing, even if Treasury buybacks reduce some long-term supply, the overall debt financing need remains.

Meanwhile, demand for corporate bonds driven by the AI boom is becoming a new factor in the long-term bond market. Bloomberg previously reported that since the start of this year, U.S. corporate debt issuance has approached $1.5 trillion, up about 36% year-on-year, with much of the financing related to AI infrastructure investment. Increased corporate bond supply is also competing with Treasuries for long-term investment capital.

Therefore, from Wall Street’s perspective, Treasury buybacks seem more about improving market microstructure and liquidity rather than fundamentally changing the macro pricing of long-term interest rates.

TGA's "Ammunition" Is Considerable, But Doesn't Equal Nearly $1 Trillion To Suppress Long-End Yields

The potential role of the TGA has drawn market attention largely due to its scale.

If the Treasury can draw funds directly from its TGA account to repurchase Treasuries, then compared to financing via short-term T-Bill issuance, this approach seems to more directly reduce long-term supply pressure.

But Deutsche Bank’s analysis reminds the market: the TGA balance cannot simply be equated with the amount of firepower Treasury has to suppress long-term yields.

The Treasury still needs to maintain a cash buffer for daily government expenditures, and if it later replenishes the TGA by issuing short-term bills, the reduced short-dated supply is merely postponed, not eliminated.

In fact, on Monday, the U.S. Treasury issued $92 billion in three-month bills and $79 billion in six-month bills, both of which saw solid demand. Deutsche Bank data show the three-month bills’ awarded yield was 3.715%, lower than the pre-auction market yield; the six-month bills’ awarded yield was 3.79%, also below pre-auction levels.

This demonstrates that short-term Treasuries still enjoy strong market demand.

Therefore, if Treasury ultimately chooses the approach of "spending the TGA first and issuing short-term bills later to replenish," the primary impact will likely be the cadence of short- versus long-term supply in the near term, rather than the overall government funding requirements.

What the Market Waits for is Whether the Fiscal Deficit and Inflation Can Cool Down

What Wall Street institutions agree on is that, while they do not deny that Treasury buybacks can have some market impact, the consensus is that this impact has clear limits.

The Treasury can reduce supply of some long-term Treasuries via buybacks, improve liquidity for selected maturities, and temporarily increase marginal demand for duration assets.

But if the U.S. fiscal deficit keeps expanding, long-term Treasury issuance remains high, and inflationary pressures limit further Fed easing, investors will continue to demand a higher long-term risk premium.

This is the key point emphasized by Goldman Sachs: buybacks have not addressed the main recent drivers of long-end volatility—fiscal deficits and inflation.

Therefore, while Monday’s news that “the TGA's nearly $1 trillion may be tapped for buybacks” showed the Treasury has greater policy space, Wall Street’s stance remains fairly restrained for now:

The Treasury can expand its “toolbox,” but is unlikely to alter the fundamental pricing of long-term Treasuries.

The next market focus will be on two fronts: how much of the TGA the Treasury will actually use, and whether the expanded buybacks kicking off on September 9th can have a more lasting impact in actual trading than last week.