The Federal Reserve's bond-buying scale exceeded expectations, and Wall Street collectively revised its 2026 forecasts

The Federal Reserve plans to purchase $40 billion of short-term U.S. Treasury bonds each month, a scale that exceeds previous market expectations. This plan has triggered a series of revisions by major Wall Street banks regarding their debt issuance forecasts for 2026, while also driving down borrowing costs.

Barclays estimates that the Federal Reserve's eventual purchases of short-term U.S. Treasury bonds in 2026 could approach $525 billion, significantly higher than the previously predicted $345 billion. The Fed's aggressive actions indicate its "tolerance for financing pressure is extremely low."

JPMorgan and TD Securities currently also 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 Fed may need to maintain this faster pace of purchases for a longer period.

Strategists say these measures will help alleviate the market pressures that have accumulated over the past few months due to the Fed's reduction of its holdings. They anticipate that these purchase plans will be a favorable factor for swap spreads and SOFR-federal funds rate basis trading. 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. (Jin Shi)