Warren Presses Bessent as Treasury Buybacks Meet Rising Yields

Sen. Elizabeth Warren is pressing Treasury Secretary Scott Bessent to explain the Treasury’s expanded bond-buyback program as long-term yields continue to rise and questions grow over how the purchases are funded.

Warren, the ranking Democrat on the Senate Banking Committee, described the measures as unprecedented and chaotic. She asked whether the Treasury plans to reduce its Treasury General Account (TGA) cash balance to finance additional purchases of longer-dated debt and requested a response by Oct. 21.

The scrutiny follows the Treasury’s Aug. 19 decision to raise the per-operation maximum for some 10- to 30-year Treasury securities to $6 billion from $2 billion. The change came roughly two weeks before the Treasury’s quarterly financing announcement, departing from the department’s longstanding emphasis on regular and predictable debt management.

Bessent has said the larger buybacks are intended to improve liquidity in older Treasury issues. The program allows banks and other institutions to sell bonds that are harder to trade and participate more easily in new Treasury auctions. He has also presented the approach as a Treasury version of an operation twist intended to ease pressure on long-term yields.

Yields have continued moving higher since the program expanded. The 10-year Treasury yield reached its highest level since 2002 on Oct. 8, while the 30-year yield neared 5.7%, a level last seen more than two decades ago.

In recent long-term buybacks, the Treasury accepted about half of investor offers, with purchases concentrated in a limited number of issues. That has prompted questions about the program’s purpose, although the outcome does not by itself establish that the policy has failed.

If improving liquidity is the main objective, the Treasury would not necessarily need to accept unattractive offers merely to use the full purchase ceiling. Some market measures also suggest that liquidity in older Treasury issues has improved, including a narrower spread between long-term Treasurys and related secured overnight financing rate swaps.

Funding remains another issue. The Treasury could issue more short-term bills and use the proceeds to repurchase longer-term debt, or draw directly from the TGA. Increasing bill issuance could limit any savings because many older bonds were issued during the pandemic at low interest rates, while new bills would carry higher rates. Drawing from the cash account would reduce the government’s cash buffer.

Bessent has attributed higher long-term yields to broader forces, including the Iran conflict’s effect on energy prices and inflation and concerns about the U.S. budget deficit. He has said borrowing costs could eventually decline if the Iran conflict ends, energy prices fall, economic growth continues and fiscal consolidation progresses.

Warren also asked whether the Treasury is considering other ways to reduce long-term borrowing costs and how higher rates have affected household financing, including mortgages and auto loans. Her requested response is due Oct. 21.