(Bloomberg) – Treasury Secretary Janet Yellen has flagged the possibility of a buyback of some US government securities, after her department asked market participants about the measure’s potential to improve liquidity in the market.
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“That’s what some other governments” do from time to time,’ Yellen said in response to reporters’ questions after an event in New York on Monday. “I don’t think it’s going to be a major intervention tool that we’re going to use – but it’s conceivable that something could be done there.”
Yellen was speaking more than a week before the Treasury Department’s quarterly refund announcement, where it typically makes any adjustments to its debt management policies. Refund documents are expected November 2.
In light of that announcement, the Treasury Department earlier this month asked U.S. government debt distributors for their views on the value and limitations of the buyback program. The Treasury Borrowing Advisory Committee, a large group of market participants, recommended looking into the move.
Yellen also acknowledged a relative shortfall in trading volume for the 20-year bond, a security reintroduced in 2020.
“The 20-year Treasury is an area, an issue where liquidity is less — but we haven’t made any decisions on it yet,” she said.
In remarks earlier Monday to the Securities Industry and Financial Markets Association, Yellen said that Treasuries are “very focused” on the Treasury market, where there have been periods of illiquidity – where Buying and selling certain securities has become more difficult, especially at larger amounts – in recent years.
For now, bond trading remains “strong,” but past stress has underscored “the importance of strengthening its resilience,” she said.
The Treasurer said in her statement that her department’s staff is “working with financial regulators to push for reforms that improve the ability of the Treasury market to absorb shocks and disruptions, rather than amplifying them”.
Treasury officials have been studying the issue for years and are currently working on a proposal to increase transparency around specific transactions in the market.
Options under consideration include more central clearing. Meanwhile, many market-making financial institutions want to relax regulatory constraints overseen by the Fed, forcing banks to set aside capital when they hold Treasuries on their balance sheets. .
(Updated with context on the refund notice in the third paragraph.)
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