Yellen Flags Potential for Buybacks of Treasury Securities

(Bloomberg) — Treasury Secretary Janet Yellen flagged the potential for buybacks of sure US authorities securities, after her division quizzed market individuals on the potential for the maneuver to enhance liquidity available in the market.

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“It’s one thing quite a few” different governments “have executed sometimes,” Yellen mentioned in answering reporters’ questions after an occasion in New York Monday. “I don’t assume it might be a most important intervention software we’d use — but it surely’s conceivable that one thing might be executed there.”

Yellen spoke a bit over every week earlier than the Treasury Division’s so-called quarterly refunding announcement, the place it sometimes makes any tweaks to its debt-management insurance policies. The refunding paperwork are anticipated Nov. 2.

Forward of that announcement, the Treasury earlier this month requested major sellers of US authorities debt for his or her views on the deserves and limitations of a buyback program. The Treasury Borrowing Advisory Committee, a broad group of market individuals, has beneficial contemplating the transfer.

Yellen additionally acknowledged a relative lack of buying and selling quantity in 20-year bonds, a safety that was reintroduced in 2020.

“The 20-year Treasury is an space, a problem the place there’s been much less liquidity — however we haven”t made any choices about it,” she mentioned.

In remarks earlier Monday to the Securities Business and Monetary Markets Affiliation, Yellen mentioned that the Treasury is “very targeted” on the Treasuries market, the place there have been episodes of illiquidity — the place it’s tougher to purchase and promote some securities, significantly in bigger quantities — in recent times.

Treasuries buying and selling stays “strong” for now, however previous stress underscored “the significance of enhancing its resilience,” she mentioned.

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The Treasury chief mentioned within the speech that her division’s employees was “working with monetary regulators to advance reforms that enhance the Treasury market’s means to soak up shocks and disruptions, quite than to amplify them.”

Treasury officers have been finding out the problem for years, and are at the moment engaged on a proposal to spice up transparency surrounding particular trades available in the market.

Choices into consideration embody extra central clearing. Lots of the market-making monetary establishments, in the meantime, would favor an easing of regulatory constraints overseen by the Fed that pressure banks to put aside capital after they maintain Treasuries on their steadiness sheet.

(Updates with context on refunding announcement in third paragraph.)

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