(Reuters) – The U.S. Treasury Department is asking primary dealers of U.S. Treasuries whether the government should buy back U.S. government bonds in order to improve liquidity in the $24 trillion market.
Investors are worried about reduced liquidity in Treasuries as yields rise and volatility increases in line with rapid rate increases by the Federal Reserve, which is struggling to bring down inflation that is running at its highest levels in four decades.
The Treasury is asking dealers about the specifics of how buybacks could work “in order to better assess the merits and limitations of implementing a buyback program.”
These include how much it would need to buy in so-called off-the-run Treasuries, which are older and less liquid issues, in order to “meaningfully” improve liquidity in these securities.
The Treasury is also querying whether reduced volatility in the issuance of Treasury bills as a result of buybacks made for cash and maturity management purposes could be a “meaningful benefit for Treasury or investors.”
It is further asking about the costs and benefits of funding repurchases of older debt issues with increased issuance of so-called on-the-run securities, which is the most current issue.
The Treasury is posing the questions as part of its regular survey of dealers before each of its quarterly refunding announcements.
(Reporting By Karen Brettell)
