Planned debt buybacks not meant for periods of market stress, US Treasury official says

investing.com:

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) — The U.S. Treasury's planned buyback of its outstanding securities next year is aimed at improving liquidity in the bond market, but it is unlikely to ease periods of extreme financial stress, a senior official said on Thursday.

In prepared remarks for the International Swaps and Derivatives Association conference in New York, Assistant Secretary for Financial Markets Josh Frost noted the importance of maintaining flexibility in providing liquidity support to certain sectors of the Treasury market.

But Frost said he wanted to make it clear «at the outset that these buybacks are not intended to ameliorate periods of acute market stress.» Frost said unlike the Federal Reserve system, which can fund its bond purchases by creating reserves, each dollar of Treasury's buybacks would have to be financed with a dollar of debt issuance as well.

«This limits our ability to rapidly increase the size of buybacks to a level potentially necessary to alleviate market stress without resulting in significant costs for the taxpayer,» Frost said.

Frost added that the corresponding rapid rise in debt issuance could significantly increase the Treasury's financing costs in times of crises.

The Treasury announced in May plans to implement a regular buyback program in 2024. The last time it conducted a regular buyback program was in the early 2000s and it ended in April 2002.

Next year when it relaunches the buyback scheme, the Treasury said in August that it intends to set a maximum amount that will be announced at each refunding. This will initially begin at $30 billion per quarter for purchases made for liquidity support, and $120 billion or the first year for buybacks made for cash