FAQs about Treasury Securities Buybacks — TreasuryDirect
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FAQs about Treasury Securities Buybacks
FAQs about Treasury Securities Buybacks
Authority
What authority does Treasury have to buy its securities in the market prior to maturity?
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” and “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 current intentions regarding the administration of buyback operations. In the event of any inconsistency between the regulations and these FAQs, 31 CFR Part 375 controls unless the buyback announcement provides otherwise. 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.
Under what circumstances will these FAQs be amended?
These FAQs reflect Treasury’s current intentions for buyback operations but may be modified, replaced, or withdrawn at any time in Treasury’s sole discretion.
Purpose
Why does Treasury buy back Treasury marketable securities?
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.
Is the liquidity support buyback objective intended to address significant dislocations in the Treasury market?
Treasury does not currently intend to use buyback operations to mitigate episodes of acute market stress.
Structure
How frequently does Treasury conduct buyback operations?
Cash management buybacks will 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 will be predicated on the expected magnitude of seasonal receipts and outlays and on market conditions. The tentative schedule for cash management buybacks will be announced at each quarterly refunding and can be found at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/.
Liquidity support buybacks will generally be conducted once or twice per week. The tentative schedule will be announced at each quarterly refunding and can be found at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/.
What types of securities does Treasury buy back?
Treasury buys back off-the-run nominal coupon securities and Treasury Inflation-Protected Securities (TIPS). Treasury does not intend to buy back bills, floating rate notes, or STRIPS.
Cash management operations generally involve securities in the one-month to two-year maturity range.
Liquidity support operations generally involve securities across the nominal and TIPS curves.
What securities does Treasury exclude from buyback operations?
For both liquidity support and cash management buyback operations, Treasury intends to exclude securities that are in high demand. For example, such exclusions are expected to include:
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 that may be considered the cheapest-to-deliver for an actively traded futures contract.
Recently issued Treasury securities such as those that are not past their first coupon payment date.
Coupon securities that are trading at a significantly lower yield than Treasury bills with similar maturities.
For cash management buyback operations, Treasury also intends to exclude coupon securities that mature around quarterly tax payment dates or the April tax season.
In addition, Treasury excludes from buyback operations (1) securities that have coupon payment dates within two business days prior to, or on, a buyback operation settlement date, (2) nominal coupon securities maturing within one month of the buyback settlement date, and (3) TIPS maturing within one year of the buyback settlement date.
Are the securities that Treasury buys back retired?
Yes. Treasury securities that are purchased through buyback operations are retired upon settlement.
Will Treasury lend securities that it buys back?
No. Treasury securities that are purchased through buyback operations are retired upon settlement.
Does Treasury buy back the entire par amount of a particular security?
No. Treasury does not intend to buy back the entire par amount of a particular security. Treasury believes that attempting to buy back the entire par amount or nearly the entire par amount of a particular security could be counterproductive in light of its goals.
Does Treasury consider the amount of SOMA holdings when it evaluates whether or how much of a security to buy back?
Yes. Treasury does not intend to buy back a security if doing so would result in the Federal Reserve System Open Market Account’s (SOMA) ownership of that security exceeding 70%.
How does Treasury determine its purchase limits for eligible securities?
Treasury’s purchase limits for eligible securities are determined by the following conditions:
The free float (i.e., the outstanding amount, less the sum of SOMA holdings and the stripped amount) stays above $10 billion par amount for nominal coupon securities and $5 billion par amount for TIPS.
SOMA holdings will not exceed 70% of outstanding par amount after the buyback operation is settled.
The purchase minimum for any single security in any buyback operation is at least $10 million par amount.
Can Treasury buy back less than the amount announced?
Treasury may buy back less than the maximum amount announced; Treasury may also determine, in its sole discretion, not to 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 the evaluation of offers, as discussed below in the FAQ “How does Treasury determine which offers to accept?”
Will Treasury carry forward unused capacity into future operations?
For cash management operations, Treasury may carry forward capacity from one cash management buyback operation to subsequent operations.
For liquidity support operations, Treasury anticipates purchasing within each maturity bucket 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 amount and Treasury buys back $1.5 billion par amount of securities, buyback operation participants should not expect the remaining $2.5 billion of unused capacity to be carried forward as additional capacity for future operations.
Participants, Systems, Support, and Contingencies
Who may participate in a buyback operation?
Currently, Treasury conducts buyback operations only with  primary dealers as designated by the Federal Reserve Bank of New York (FRBNY)  and entities approved by Treasury to participate directly in buyback operations.  Customers may access buyback operations through a primary dealer or an entity  approved by Treasury to participate directly in buyback operations. Submitters are  responsible for delivering any securities Treasury accepts in a buyback  operation, including any securities for which offers were submitted on behalf  of others. (See 31 CFR §§ 375.15 and 375.23.)
What is Treasury’s Eligibility Criteria for Direct Buyback Access?
Treasury offers direct buyback access to a limited number of additional counterparties (i.e., entities other than the primary dealers) based  on their participation in Treasury auctions. Eligibility is reviewed semiannually  and is limited to auction bidders with more than $35 billion in total nominal  coupon and TIPS auction awards (duration adjusted to 10-year equivalents)  during a six-month observation period. Going forward, auction awards in April  through September will determine eligibility for the first half of the  subsequent year, and auction awards in October through March will determine  eligibility for the second half of the year. The $35 billion threshold was  established based on operational constraints and may be adjusted in the future.  For reference, Treasury has provided a 10-year equivalent calculator for  relevant auctions in the “Helpful Information” section of the buybacks website.
Treasury notifies potential additional counterparties  individually of their eligibility. Direct buyback participants must formally  acknowledge the program’s terms and conditions and successfully complete the onboarding  process before accessing buyback operations.
How does Treasury conduct buyback operations?
Treasury has directed FRBNY, as fiscal agent of the United States, to conduct buyback operations. These operations are conducted using the FedTrade platform (or any successor platform).
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 Treasury) are each $1 million par amount. Submitters may submit up to nine offers per security.
Submitters must format an offer in terms of price per $100 of par amount. The price format is the number of whole dollars, followed by a hyphen. The first two numbers after the hyphen represent fractional 32nds of a dollar, and the third number represents eighths of a 32nd of a dollar. For example, an offer of 102-172 means one hundred two and seventeen 32nds and two eighths of a 32nd, or in decimal form, 102.5390625.
Who should submitters call if they experience difficulties during a buyback operation?
Submitters may call the FRBNY Trading Desk with submission and verification questions. For system-related problems, dealers may call FRBNY Primary Dealer Support.
Under what circumstances may Treasury cancel or reschedule an already announced buyback operation?
Circumstances in which Treasury may cancel or reschedule a buyback operation include (1) temporary technical disruptions to Treasury’s buyback capabilities or (2) acute market stress or extreme volatility, if Treasury anticipates the quality or number of offers received could be adversely impacted.
Announcement
What is the purpose of the buyback operation announcement?
The buyback operation announcement and 31 CFR Part 375 specify the terms and conditions of a buyback operation. If anything in the buyback operation announcement differs from the buyback regulations, the terms of the buyback operation announcement control. Accordingly, you should read both the applicable buyback operation announcement and 31 CFR Part 375.
How does Treasury announce buyback operations?
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 at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/.
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 at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/.
Operational Final
The final buyback announcement is released generally at 11:00 a.m. ET 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 at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/.
Acceptance of Offers
How does Treasury determine which offers to accept?
Offers are evaluated based on their proximity to prevailing market prices at the close of the operation, as well as measures of relative value.
How do participants learn whether their offers were accepted?
Submitters: Submitters receive the operation results, including their accepted offers, via FedTrade (or any successor platform), promptly following the close of the operation.
Customers: Submitters are responsible for notifying their customers of the amount of their securities to be purchased through the buyback.
Results
When and how does Treasury announce the aggregate buyback operation results?
After the conclusion of the buyback operation, Treasury provides the aggregate buyback operation results through a press release available at https://treasurydirect.gov/auctions/announcements-data-results/buy-backs/. Per the announcement, the results press release includes such information as the total par amount offered, total par amount accepted, total par amount accepted per security, and the weighted average accepted price per security. Historical buyback results data are also available at the same website.
Settlement
When does the settlement process occur?
Settlement generally occurs one business day following a buyback operation, although Treasury reserves the right to conduct same-day settlement. Please consult the buyback operation announcement for timing.
Who is responsible for delivering securities?
A submitter is responsible for delivering any securities Treasury accepts in the buyback operation, including any securities for which offers were submitted on behalf of others. (See 31 CFR § 375.23.) All securities delivered must be free and clear of all liens, charges, claims, and any other restrictions or encumbrances.
What will happen if a submitter fails to deliver securities?
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.
In order to increase certainty that securities will be delivered at settlement, in certain circumstances, 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.
What could happen if a submitter does not fully comply with the buyback operation rules?
Treasury will consider the circumstances and take what Treasury deems to be appropriate action. This could include barring the person or entity from participating in future buyback operations and future auctions under 31 CFR Part 356. Treasury may also refer the matter to an appropriate regulatory agency.
Do I have to make any certifications?
By tendering an offer, you certify that you are in compliance with the buyback regulations at 31 CFR Part 375 and the buyback operation announcement.
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