The Federal Reserve's bond buying scale exceeds expectations, Wall Street collectively revises 2026 forecasts

The Federal Reserve plans to purchase $40 billion in short-term U.S. Treasury bonds each month, a scale that exceeds previous market expectations. This plan has triggered a series of revisions from major Wall Street banks regarding the 2026 debt issuance forecast, while also driving down borrowing costs. Barclays estimates that the total amount of short-term U.S. Treasury bonds purchased by the Federal Reserve in 2026 could approach $525 billion, far exceeding the previous forecast of $345 billion. The Federal Reserve's aggressive actions indicate its "very low tolerance" for financing pressures. JPMorgan and TD Securities currently believe that the Federal Reserve will absorb a larger scale of debt. Bank of America expects that in order to supplement sufficient reserves and stabilize money market interest rates, the Federal Reserve may need to maintain this faster pace of purchases for a longer time. Strategists say these measures will help alleviate the market pressures that have accumulated over the months due to the Federal Reserve's reduction of its holdings. They expect these purchase plans to become favorable factors for swap spreads and SOFR-Federal Funds rate basis trades. On Wednesday, trading volume in short-term interest rate futures surged, and the two-year swap spread widened to its highest level since April, indicating that short-term market pressures have eased.