US Treasury announces launch of buyback program for May to July quarter, first buyback operations scheduled on May 29th

US Treasury announces launch of buyback program for May to July quarter, first buyback operations scheduled on May 29th.


The Treasury Department stated on Wednesday that it intends to maintain auction sizes for U.S. notes and bonds at current levels over the next few quarters, aligning with expectations. This decision accompanied the announcement of a total refunding of $125 billion for the May to July quarter, aimed at raising new cash of $17.2 billion from private investors.

Additionally, the Treasury launched its buyback program, with the first scheduled buyback on May 29. This program marks the resumption of regular buybacks, which had last occurred in the early 2000s and ended in April 2002.

The Treasury's upcoming auctions include $58 billion in U.S. three-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds next week. The decision to keep auction sizes unchanged was based on current projected borrowing needs, with the Treasury noting significant increases in issuance sizes for nominal coupon and floating rate note securities since August.

"The auction sizes were unchanged as expected, but the key here is that this a pause in increases not a reversal," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York. "The Treasury very clearly said they don't anticipate increasing auction sizes at least for the next several quarters. But they're still talking about an increase, not a decrease. Our view is that by mid-2025, Treasury may have to start increasing auction sizes again."

The Treasury plans to address seasonal or unexpected changes in borrowing needs over the next quarter through adjustments in regular bill auction sizes and cash management bills. It also intends to maintain "incremental increases" to the auction sizes of Treasury Inflation-Protected Securities (TIPS) to maintain a stable share of TIPS as a percentage of total marketable debt outstanding.

For Treasury bills, the Treasury expects to increase the four-, six-, and eight-week bill auction sizes in the coming days to ensure sufficient liquidity to meet one-week cash needs around the end of May. Additionally, ahead of the non-withheld and corporate tax filing date on June 15, the Treasury plans to reduce short-dated bill auction sizes during early to mid-June and return them to higher levels for July.

Regarding the buyback program, the Treasury plans to hold weekly "liquidity support" buybacks of up to $2 billion per operation in nominal coupon securities and up to $500 million per operation in TIPS. These buybacks aim to improve liquidity in the bond market by providing a regular opportunity for market participants to sell back older and less liquid securities to the Treasury across the yield curve.

No cash management buybacks are planned for the May to July 2024 quarter, but they could begin later in 2024 depending on fiscal flows and market conditions. The Treasury intends to announce a tentative buyback schedule at each quarterly refunding.

Regarding a proposal from the Treasury Borrowing Advisory Committee (TBAC) to reduce borrowing costs and expand the investor base, Josh Frost, the Treasury's assistant secretary for Financial Markets, stated that this was a periodic request by the Treasury to the group. He emphasized that TBAC's proposal is exploratory in nature, with no specific recommendations at this point.

The Treasury also announced plans to change the regular six-week cash management bills into a benchmark bill as part of the regular weekly bill issuance schedule going forward, based on the recommendation of primary dealers and TBAC.