FAQs for Treasury Securities Buybacks — TreasuryDirect (2024)

Section 3111 of Title 31 of the United States Code authorizes Treasury to use money received from the sale of an obligation and other money in the general fund of the Treasury to “buy, redeem, or refund, at or before maturity, outstanding bonds, notes, certificates of indebtedness, Treasury bills, or savings certificates of the United States Government.” Throughout these frequently asked questions (FAQs) the terms “buyback operations” or “buybacks” are used when referring to Treasury securities redemption operations.

The regulations governing marketable Treasury securities redemption operations are codified at 31 CFR Part 375. These FAQs summarize certain provisions of the regulations and provide additional information relating to Treasury’s intended administration of buyback operations at this time, which in certain cases differs from the procedures described at 31 CFR Part 375. In the event of any inconsistency between the regulations, these FAQs, and the buyback announcement, the terms of the buyback announcement control. If the announcement is silent and there is inconsistency between 31 CFR Part 375 and these FAQs, 31 CFR Part 375 controls. These FAQs are not intended to, and do not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

Treasury conducts two types of buyback operations:

Cash management buybacks are intended to reduce volatility in Treasury’s cash balance and Treasury bill issuance, minimize bill supply disruptions, and/or reduce borrowing costs over time.

Liquidity support buybacks are intended to bolster market liquidity by establishing a regular and predictable opportunity for market participants to sell off-the-run Treasury securities.

Cash management buybacks generally take place seasonally, predominantly during the weeks immediately surrounding major tax payment dates (e.g., mid-April, mid-June, mid-September, and mid-December) when cash balances tend to increase rapidly. The size and frequency of cash management buyback operations are predicated on the expected magnitude of seasonal receipts and outlays and on market conditions. The tentative schedule for cash management buybacks is announced at each quarterly refunding and can be found at this website: https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/

Liquidity support buybacks generally are conducted once per week on Wednesday afternoons. That day may change due to holidays or other market events such as Federal Open Market Committee policy announcements or other economic data releases. In general, the tentative schedule for liquidity support buybacks will attempt to anticipate such events. The tentative schedule is announced at each quarterly refunding and can be found at this website: https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/

Treasury intends to exclude from liquidity support buyback operations securities that are in high demand. For example:

• On-the-run securities, which are the most recently issued Treasury security of a given maturity.
• Treasury securities that are trading significantly special in repurchase agreement markets or are otherwise in exceptional demand compared with similar issues.
• Treasury securities which may be considered the cheapest-to-deliver for a futures contract.
• Recently issued Treasury securities that are not past their first coupon payment date.

In addition to the intended exclusions outlined above, Treasury also excludes securities that have coupon payment dates within two (2) business days prior to, and including, a buyback operation settlement date, due to operational considerations.

In addition to the exclusions outlined above for liquidity support buybacks, Treasury may apply further criteria for excluding securities from cash management buybacks in order to avoid purchasing securities 1) that are already in high demand and/or 2) where the purchase of such securities may not be aligned with Treasury’s goal of minimizing the government’s borrowing cost over time. The following security exclusions would generally apply for cash management buyback operations:

• Coupon securities that are trading at a significantly lower yield than Treasury bills with similar maturities.
• Coupon securities that mature around quarterly tax payment dates and the April tax season.

These operations generally involve securities in the 0-year to 2-year maturity range.

Buyback operations will initially include up to 20 eligible securities per operation.

Treasury intends to increase the maximum number of eligible securities per operation over time as the retirement of securities purchased in buyback operations is further automated.

Treasury will buy back securities subject to the following conditions:

• Free float (i.e., outstanding amount, less the sum of SOMA holdings and the stripped amount) stays above $10 billion par,
• SOMA holdings will not exceed 70% of outstanding after the buyback operation is settled, and
• The purchase minimum for any single security in any buyback operation is at least $10 million par.

Treasury may buy back less than the maximum amount announced; it is also possible that Treasury may not buy back any securities during an operation.

Treasury announces a tentative minimum (currently $0) and maximum purchase amount for each operation. The amount of any particular security to be purchased is determined during a buyback operation. Actual buyback amounts depend on market conditions and the quality of offers received during an operation.

For cash management operations, Treasury may carry forward capacity from one cash management buyback operation to subsequent operations. Treasury bases the size and frequency of cash management buyback operations on expected government receipts and payments, as well as market conditions.

For liquidity support operations, Treasury anticipates purchasing within each maturity bucket sequentially at least one time per quarter, and does not intend to carry forward unused capacity from one liquidity support buyback operation to subsequent operations. For example, if the maximum purchase amount of a liquidity support buyback operation is $4 billion par and Treasury buys back $1.5 billion par in securities, buyback operation participants should not expect the remaining $2.5 billion par of unused capacity to be carried forward as additional capacity for future operations.

Treasury has directed FRBNY, as fiscal agent of the United States, to conduct buyback operations. These operations are conducted using the FedTrade system.

Buyback operations are a competitive, multiple-price process in which successful submitters receive the price at which they offered securities. The minimum offer amount and minimum increment (the smallest additional par amount of a security that may be offered to the Treasury) are each $1 million par. Submitters may submit up to nine offers per security.

Treasury typically provides information about future buyback operations in three stages.

Quarterly Tentative

The tentative buyback schedule announced at each quarterly refunding provides anticipated dates and other operational parameters for both cash management and liquidity support buyback operations. The tentative buyback schedule is available on our website at:

Operational Preliminary

The operational preliminary announcement is generally released at least one business day before the operation.

It provides preliminary expectations for the buyback operation, such as: the maximum par amount of securities Treasury is planning to buy back, the range of maturities of eligible securities, a preliminary list of eligible securities, and the buyback operation and settlement dates. Treasury provides the preliminary buyback operation announcement through a press release available on our website at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/

Operational Final

The final buyback announcement is released generally at XX:XXa/pm on the day of the buyback operation. It includes the final list of eligible securities. This final announcement supersedes the preliminary announcement. Treasury provides the final buyback operation announcement through a press release available on our website at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/

Submitters: Participating dealers receive the operation results, including their accepted offers, via FedTrade, promptly following the close of the auction.

Customers: Submitters are responsible for notifying their customers of the amount of their securities to be purchased through the buyback.

Treasury currently anticipates that failure to deliver securities on the scheduled settlement date will result in the application of a penalty fee in accordance with the Treasury Market Practices Group fails charge methodology unless otherwise indicated in the applicable buyback operation announcement. See Frequently Asked Questions: TMPG Fails Charges for additional information. Treasury also may take other actions consistent with 31 CFR § 375.31 at any time in its sole discretion.

During periods in which Treasury needs greater certainty that securities will be delivered at settlement, Treasury may announce a requirement that submitters have possession, prior to the close of the buyback operation, of any securities being offered. If a submitter fails to deliver securities during such periods, Treasury may impose penalties beyond those that it normally imposes.