FAQs for Treasury Securities Buybacks

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.

These FAQs reflect Treasury’s current intentions for the initial buyback operation design but may be modified, replaced, or withdrawn at any time in Treasury’s sole discretion.

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.

Treasury does not currently intend to use buyback operations to mitigate episodes of acute market stress.

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

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.

Treasury intends to exclude from liquidity support buyback operations 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 a futures contract.
• Recently issued Treasury securities that are not past their first coupon payment date.

In addition, Treasury excludes securities that have coupon payment dates within two business days prior to, or on, a buyback operation settlement date, due to operational considerations.

Treasury also excludes nominal coupon securities maturing within one month of the buyback settlement date and TIPS maturing within one year of the buyback 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 consistent with Treasury’s goal of minimizing the government’s borrowing cost over time. Accordingly, 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 or the April tax season.

Cash management operations generally involve securities in the one month 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.

Yes. Treasury securities that are purchased through buyback operations are retired upon settlement.

No. Treasury securities that are purchased through buyback operations are retired upon settlement.

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.

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%.

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.

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?”

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.

Initially, Treasury will conduct buyback operations only with primary dealers designated by the Federal Reserve Bank of New York (FRBNY); customers may access buyback operations through a primary dealer. Primary dealers, as 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.) Treasury anticipates considering whether to allow other counterparties to directly participate in the future.

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 Treasury) are each $1 million par amount. Submitters may submit up to nine offers per security.

Primary dealers may call the FRBNY Trading Desk with submission and verification questions. For system-related problems, dealers may call FRBNY Primary Dealer Support.

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.

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.

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/.

Offers are evaluated based on their proximity to prevailing market prices at the close of the operation, as well as measures of relative value.

Submitters: Participating primary dealers receive the operation results, including their accepted offers, via FedTrade, 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.

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 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.

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.

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.

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.

By submitting a tender offering a security or securities for sale, you certify that you are in compliance with the buyback regulations at 31 CFR Part 375 and the buyback operation announcement.