【Global Network Finance Comprehensive Report】According to reports from Bloomberg and other foreign media, as the Federal Reserve announced an aggressive government bond purchase plan, several major Wall Street investment banks have recently quickly adjusted their estimates of the supply and demand relationship for U.S. government bonds in 2026.
（Image Source: Bloomberg）
Barclays Bank expects that the total amount of short-term government bonds purchased by the Federal Reserve in 2026 may approach $525 billion, significantly higher than the previously predicted $345 billion. The bank's analysis suggests that this move by the Federal Reserve indicates a 'very low tolerance' for financing pressure, and it is expected that the pace of purchases will remain high in the first quarter of next year, only potentially decreasing from $55 billion per month (including reinvestment in mortgage-backed securities MBS) to $25 billion by April.
JPMorgan also raised expectations, predicting that the Federal Reserve will maintain a monthly purchase size of $40 billion until mid-April, and then reduce it to $20 billion per month. Combined with approximately $15 billion in MBS reinvestment each month, the total purchase amount by the Federal Reserve in the secondary market will reach $490 billion by 2026, resulting in a net issuance of only $274 billion in short-term Treasury bonds next year.
TD Securities strategists expect that the Federal Reserve will purchase $425 billion in notes through the Standing Repo Facility (RMP) and MBS reinvestments during fiscal year 2026, absorbing most of the net supply.
The Federal Reserve's actions this time are widely interpreted as a preemptive measure against fluctuations in the repo market. The RBC Capital Markets team stated that they previously underestimated the Federal Reserve's "discomfort" with fluctuations in repo rates within the month and noted that the Federal Reserve seems to focus more on absorbing Treasury issuance rather than simply increasing reserves. Deutsche Bank analysts indicated that the Federal Reserve started this process earlier than in 2019, indicating that it is more cautious in managing the transition to ample reserves, which will help further stabilize the repo market.
However, some institutions hold a cautious attitude towards the stability of the short-term market. Bank of America strategists warn that the Federal Reserve may need to maintain high-speed purchases for a longer period. They estimate that the current RMP scale can only supplement about $80 billion of excess cash by mid-April, while achieving the desired effect may require an additional $150 billion. The bank also pointed out that if the Federal Reserve perceives that note investors are adversely affected, it may expand the range of purchases to include Treasury bonds with a maturity of three years.
Wells Fargo's team stated that although the $40 billion monthly scale is at the expected upper limit and constitutes a "significant tailwind" for the secured overnight financing rate (SOFR) and the spread between the federal funds rate and U.S. swap rates, this is not a "panacea" for liquidity at the end of the year. It is expected that the financing market will still face certain pressures around the end of the year.
