"$40 Trillion" and Beyond: Corporate Financing in the AI Wave Emerges as the Biggest Competitor to U.S. Treasury Bonds

U.S. Treasury Secretary Scott Bessent stated on August 24 that although the Treasury Department recently announced an expansion of long-term U.S. Treasury buyback operations, the government’s regular Treasury auction schedule would remain unchanged. The Treasury will continue issuing debt according to its established timetable.

Bessent made these remarks during a press conference following the Treasury’s announcement of an expanded long-term Treasury buyback program. He emphasized that the Treasury would continue funding through its current auction schedule, with market expectations that the department will announce new issuance plans at the start of the next quarter.

Next long-term Treasury auction scheduled for mid-September

When asked whether the Treasury might reduce long-term Treasury auction sizes or use other policy tools to lower U.S. Treasury yields, Bessent clearly stated, "We will continue with our regular Treasury auction program." He added that the Treasury has not yet "purchased a single bond."

This indicates that the Treasury’s expanded buyback program does not currently imply a simultaneous reduction in the issuance volume of 10-year, 20-year, or 30-year Treasury bonds. Buyback operations and regular debt issuance will continue as two parallel debt management tools.

Bessent noted that the next round of long-term U.S. Treasury auctions—including 10-year notes, 20-year bonds, and 30-year bonds—is not scheduled until mid-September. Therefore, even though the Treasury’s new buyback arrangement takes effect on September 9, markets will not see long-term bond auctions under the new system until mid-September.

On August 19, the Treasury announced an adjustment to its buyback program, raising the maximum authorized amount per operation from $2 billion to at least $4 billion.

Notably, "at least $4 billion" is not a new fixed cap but rather a minimum operational scale the Treasury aims to establish. In other words, actual buyback amounts can still be adjusted based on market conditions, liquidity needs, and investor willingness to sell bonds, giving the Treasury greater operational flexibility.

Buyback program briefly pushed down 10-year and 30-year Treasury yields

This adjustment is expected to remain in place until the end of the current quarter, November 4. The Treasury will provide further information on future buyback scales at that time.

In its policy announcement, the Treasury stated that increasing buyback operations aims to strengthen liquidity in the long-term nominal bond market. The department believes this segment continues to receive strong investor support, partly because past long-term Treasury buybacks have received numerous eligible bond sale offers.

Following the Treasury’s announcement of expanded long-term Treasury buybacks, the U.S. bond market reacted immediately.

After the news was released last week, yields on 10-year U.S. Treasuries, as well as 20-year and 30-year bonds, temporarily declined. However, this yield drop did not fully persist, and yields largely recovered their earlier losses by the end of the week.

As of August 25, long-term U.S. Treasury yields showed a slight decline.

Bessent previously stated that the primary goal of increasing buyback scale is to improve liquidity in the long-term U.S. Treasury market, particularly in the 30-year bond segment. Compared to short-term Treasuries, long-term bonds trade less frequently, making prices more volatile when large buy-sell imbalances occur.

Corporate bonds may compete with long-term U.S. Treasuries for investor funds

Additionally, long-term U.S. Treasuries are facing another source of pressure: a surge in corporate bond issuance.

As the artificial intelligence (AI) industry rapidly expands, investment demand for AI-related infrastructure—including data centers, power supply, chips, network equipment, and other infrastructure—is rising, increasing corporate financing needs. Some companies are raising funds through corporate bond issuance, and in a high-yield environment, corporate bonds may compete with long-term U.S. Treasuries for investor capital.

Therefore, the U.S. Treasury market is influenced not only by the government’s own debt issuance but also by corporate bond supply, investor asset allocation, and market liquidity.

Higher Treasury yields increase U.S. government interest payment pressure

Another key reason long-term U.S. Treasury yields are closely watched is that the U.S. government itself is one of the world’s largest sovereign bond issuers.

When Treasury yields remain at elevated levels, the U.S. government may face higher interest costs when issuing new debt or refinancing existing debt. As U.S. federal debt continues to grow, the impact of interest rate changes on government finances becomes increasingly significant.

At the time of this policy adjustment, total U.S. federal debt surpassed the $40 trillion mark for the first time last week, bringing the size of U.S. debt and its interest burden back into the market spotlight.

The Treasury aims to improve long-term Treasury market liquidity by buying back some long-term bonds, but this measure does not equate to reducing the overall U.S. government debt, nor does it mean the government will immediately reduce new debt issuance.

Treasury has not yet disclosed the funding source for buybacks

Another market concern is which funds the Treasury will use to execute the expanded bond buybacks.

In its August 19 announcement, the Treasury did not specify the exact funding source for the increased buyback operations.

According to Reuters, the Treasury General Account (TGA) at the Federal Reserve (Fed) could be one potential funding source.

Using TGA funds for Treasury buybacks would allow the Treasury to avoid issuing additional short-term debt to raise buyback funds. However, this would also reduce the government’s available cash balance.

The TGA essentially functions as the U.S. federal government’s "checking account," used to fund daily fiscal expenditures, including federal employee salaries, government contract payments, and principal and interest payments on U.S. Treasury securities.

Therefore, if the Treasury uses the TGA for bond buybacks, it could avoid issuing additional short-term debt for this purpose, but it would also deplete the government’s cash reserves.

TGA balance around $940 billion, cash position steadily increasing this year

As of August 19, the TGA account balance was approximately $940 billion.

The Treasury has been steadily increasing its TGA cash position this year, partly due to potential large-scale tariff refunds the U.S. government may face.

After the U.S. Supreme Court overturned key parts of the Trump administration’s tariff policy, the U.S. government may need to refund portions of tariffs already paid by importers. The related refund amount is estimated at around $166 billion, and the Treasury had previously increased its cash holdings to prepare for fiscal funding needs, including tariff refunds.

Over the past year, the TGA’s average balance has been around $840 billion, one of the highest levels on record. Excluding the rapid and substantial increases during the COVID-19 pandemic, this level represents a historical high.

With U.S. debt surpassing $40 trillion, the Treasury faces multiple pressures, including massive Treasury issuance needs, long-term bond yields, government interest payments, and cash management. The current expansion of Treasury buyback operations primarily targets adjustments to liquidity and trading conditions in the long-term U.S. Treasury market.