Wall Street institutions remain unimpressed by long-dated US Treasuries following reports that the Treasury Department may tap its nearly $1 trillion General Account (TGA) to support debt buybacks.

Deutsche Bank suggests that if the Treasury ultimately uses the TGA to fund an expanding repurchase program, the impact on bank reserves and short-term bill issuance could be "basically zero". Goldman Sachs and Wells Fargo further argue that buybacks alone are unlikely to reverse the upward trend in long-term yields unless the government simultaneously tackles the widening fiscal deficit and inflationary pressures.

This implies that even with nearly a trillion dollars in cash ammunition at its disposal, what the market truly cares about is not how much debt the Treasury can purchase, but whether buybacks can alter the fundamental forces driving long-end yields higher.

Deutsche Bank: TGA-funded buybacks may have "little net effect" on reserves and bill supply

On Monday, CNBC reported that the US Treasury is considering using funds from its near-$1 trillion TGA to finance an expanding debt repurchase program. Citing two senior Treasury officials, the report noted that the department may draw from cash reserves to buy back older, higher-yielding securities, though specific amounts and timing remain unclear.

The news quickly sparked debate over how such Treasury operations might impact liquidity in the financial system.

However, Deutsche Bank believes that if the Treasury does choose to tap the TGA, the overall effects on bank reserves and short-term bill issuance could largely offset each other.

Deutsche Bank strategist Steven Zeng noted that it remains unclear whether the Treasury intends to permanently lower TGA balances to fund new buybacks, or temporarily reduce them and later replenish the account by issuing short-dated bills.

In the former scenario, a declining TGA would inject funds into the financial system, potentially affecting bank reserves, but this would also mean the Federal Reserve needs to conduct fewer reserve management purchases (RMP) in the future.

In the latter scenario, the Treasury would merely defer the timing of short-term bill issuance, essentially changing the distribution of bill supply over time rather than its total volume.

Therefore, Deutsche Bank concludes that the net effect would likely be roughly neutral under either approach.

Zeng also indicated that the Treasury probably will not provide further clarification on its funding arrangements, suggesting that "deliberately remaining vague may be intentional".

This assessment implies that markets should not over-interpret the TGA's size alone, as the near-trillion-dollar figure represents the account balance, not the amount the Treasury intends to deploy for buybacks.

Goldman Sachs: Even expanded buybacks may fail to "reset" long-term rate levels

While Deutsche Bank focused on liquidity and funding sources, Goldman Sachs and Wells Fargo directed attention directly to whether buybacks can genuinely lower long-end yields.

Citing an August 21 research note from Goldman Sachs strategists George Cole, William Marshall and colleagues, Bloomberg reported that expanding long-dated Treasury buybacks does not address the primary source of recent long-end volatility.

Goldman Sachs argues that even with further expansion, buybacks alone are unlikely to produce a meaningful repricing of long-term interest rate levels.

The reason is that current upward pressure on long-end yields stems not merely from market liquidity shortages, but also from persistently widening fiscal deficits, Treasury supply pressures, and inflation risks.

In other words, while Treasury buybacks can reduce some outstanding long-dated securities, if investor concerns over future fiscal deficits and inflation remain unchanged, long-end yields will continue to face significant upward pressure.

Goldman's assessment broadly aligns with recent market action in Treasuries.

After the Treasury announced last Wednesday that it would at least double the size of long-dated buyback operations, 10-year and 30-year yields initially declined but quickly rebounded. Bloomberg previously reported that the 30-year yield rose back to 5.26% on Thursday, essentially erasing all gains following the expansion announcement.

This suggests that markets have already cast a relatively cautious vote through actual trading on the Treasury's initial escalation.

Wells Fargo and others see "structural" pressure on long-end yields

Interest rate strategists at Wells Fargo also believe that Treasury buyback measures will struggle to reverse the upward trajectory of long-term yields.

In their view, long-end yields currently face broader structural pressures rather than the short-term liquidity issues that buybacks might address.

Media reports citing multiple institutions indicate that besides Goldman Sachs and Wells Fargo, Societe Generale, Deutsche Bank and Scotiabank also expect the US yield curve to steepen further, meaning long-term yields will continue to rise relative to short-term yields.

This reflects persistent market concerns over America's fiscal position.

Especially given that the US government still needs to issue substantial amounts of debt to finance its operations, overall borrowing demand remains intact even if buybacks reduce some long-dated supply.

Meanwhile, the AI boom is generating new corporate bond issuance demand that is becoming an additional variable in the long-dated bond market. Bloomberg previously reported that US corporate bond issuance this year has approached $1.5 trillion, up roughly 36% year-over-year, with a significant portion tied to AI infrastructure investment. This increased corporate supply is also competing with Treasuries for long-term capital.

Thus, in Wall Street's view, Treasury buybacks more closely resemble an effort to improve market microstructure and liquidity rather than fundamentally altering the macro pricing of long-term rates.

The TGA "ammunition" is substantial, but it does not mean the Treasury has nearly $1 trillion to suppress long-end yields

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

If the Treasury could directly draw from the TGA to repurchase debt, this approach might appear to reduce long-dated supply pressure more directly compared with financing through short-term bill issuance.

But Deutsche Bank's analysis serves as a reminder that the TGA balance cannot simply be equated with the amount of funds the Treasury can deploy to cap long-end yields.

The Treasury still needs to maintain a cash buffer for day-to-day government expenditures, and if it later replenishes the TGA by issuing short-dated bills, the previously reduced bill supply would merely be deferred rather than permanently eliminated.

In fact, on Monday the Treasury auctioned $92 billion in three-month bills and $79 billion in six-month bills, with demand proving relatively robust. Deutsche Bank data showed the three-month bill auctioned at a yield of 3.715%, below pre-auction market levels, while the six-month bill came in at 3.79%, also below pre-auction levels.

This indicates that short-dated Treasuries continue to enjoy strong market demand.

Therefore, if the Treasury ultimately opts for a "spend the TGA first, replenish with bills later" approach, what genuinely changes is mainly the short-term supply timing across different maturities, not the government's overall borrowing requirements.

What the market is truly waiting for: whether fiscal deficits and inflation can cool

The common thread across Wall Street institutions is that while they do not deny buybacks can generate some market impact, they generally believe such effects have clear boundaries.

The Treasury can use buybacks to reduce some long-dated supply, improve liquidity in specific maturities, and marginally increase demand for duration assets in the near term.

But if fiscal deficits continue to widen, long-dated issuance remains elevated, and inflation pressures constrain the Federal Reserve from easing further, investors will still demand higher term premiums on long-dated securities.

This is the key point emphasized by Goldman Sachs: buybacks have not addressed the primary source of recent long-end volatility, namely fiscal deficits and inflation.

Therefore, while Monday's report of a "near-$1 trillion TGA as a potential buyback funding source" shows markets a larger policy space for the Treasury, Wall Street's current answer remains notably restrained.

The Treasury can expand its toolkit, but that does not necessarily mean it can change the fundamental pricing of long-dated Treasuries.

Going forward, markets will focus on two questions: how much TGA funding the Treasury will ultimately deploy, and whether the expanded buyback program set to take effect on September 9 can produce more durable results in actual trading than last week's announcement.