$739B in New US Debt Could Absorb Crypto's Liquidity Before Buybacks Reach Bitcoin

The US Treasury expects to borrow $739 billion from July through September, while also paying investors to hand back some of its older bonds. This move may seem self-defeating at first glance, but it solves two separate problems: auctions finance the government and create liquid benchmarks, while buybacks retire selected old issues or help Treasury manage its cash balance.

Treasury's August refunding statement authorized up to $38 billion in liquidity-support purchases and $25 billion of short-dated cash-management purchases during the current quarter. The program aims to reduce fragmented supply and free dealer capacity between operations, as described by Josh Frost, then Treasury's assistant secretary for financial markets.

The Treasury General Account carries the cash through the system, with auction proceeds and buyback payments passing through it. This means that private buyers settle a Treasury auction, money moves toward the TGA and reserve balances in the banking system generally decline. Federal spending and Treasury buybacks send funds back toward private accounts, adding reserves along the way.