U.S. Treasury Secretary Bessent said the Treasury has multiple tools to deal with liquidity pressure in the Treasury market and may further expand government bond buybacks, according to BlockBeats on Aug. 21.
"We have a big toolbox," Bessent said. He added that the Treasury wants to improve market liquidity through policy operations rather than directly control the yield curve.
September long-bond buybacks may exceed $4 billion
Bessent said the Treasury's planned long-dated bond buybacks set to begin in September could exceed $4 billion. The Treasury had previously announced that from early September it would at least double the size of long-bond buybacks. That announcement briefly pushed Treasury yields lower, but the market reaction faded quickly, with 10-year and 30-year Treasury yields later rising again.
He said the larger buybacks are mainly intended to improve trading order during the low-liquidity summer period.
Market focus shifts to debt maturity adjustments
Market participants said that simply increasing buyback size may not be enough to change the trend in long-term Treasury yields. They believe the Treasury could also ease funding pressure by adjusting the debt maturity structure, reducing long-dated issuance, and increasing sales of short-term Treasury bills.
Fiscal consolidation plan and deficit comments
Bessent also said he plans to work with White House Office of Management and Budget chief Vought on a new fiscal consolidation plan. The government may try to reduce hundreds of billions of dollars in waste through anti-fraud measures and cuts to inefficient spending.
He said the U.S. fiscal deficit has "very likely already peaked," and added that stronger tariff revenue could improve the fiscal position.
Treasury may work with the Fed on market stress
Bessent also said the Treasury may work with the Federal Reserve to address pressure in the Treasury market and issues related to the Fed's Treasury holdings. Federal Reserve Chair Warsh had previously stressed that interest rates should be determined by the market.
Fiscal pressure in the U.S. remains heavy. Total U.S. government debt has exceeded $40 trillion, while the fiscal deficit is close to 6% of GDP. With limited room for tax cuts, limited space for spending reductions, and a rising term premium on long-dated bonds, the market remains cautious on the outlook for long-term U.S. debt.
Reaffirmed strong-dollar policy
Bessent also reiterated U.S. support for a strong-dollar policy, saying the recent weakness in the dollar mainly reflects a pullback after an earlier sharp rise.