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 members on the potential for the maneuver to enhance liquidity out there.

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“It’s one thing a variety of” different governments “have achieved sometimes,” Yellen stated in answering reporters’ questions after an occasion in New York Monday. “I don’t assume it might be a foremost intervention device we might use — but it surely’s conceivable that one thing could possibly be achieved there.”

Yellen spoke slightly over every week earlier than the Treasury Division’s so-called quarterly refunding announcement, the place it usually 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 main 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 members, has really helpful 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 difficulty the place there’s been much less liquidity — however we haven”t made any choices about it,” she stated.

In remarks earlier Monday to the Securities Trade and Monetary Markets Affiliation, Yellen stated 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 — lately.

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

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The Treasury chief stated within the speech that her division’s workers was “working with monetary regulators to advance reforms that enhance the Treasury market’s capability 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 out there.

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

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

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