The Fed's Bond-Buying Program Exceeds Expectations, Wall Street Revises 2026 Forecast Collectively

BlockBeats News, December 12, the Federal Reserve plans to purchase $400 billion of short-term U.S. Treasury securities per month, a scale that exceeds previous market expectations. This plan has triggered a series of revisions to Wall Street's major banks' forecasts for debt issuance in 2026 and has also pushed down borrowing costs.

Barclays Bank estimates that the Federal Reserve's final purchase of short-term U.S. Treasuries in 2026 could be close to $525 billion, much higher than the previously predicted $345 billion. The Fed's aggressive move indicates its "extremely low tolerance" for funding pressure.

JPMorgan and Citigroup 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 rates, the Fed may need to maintain this faster purchase pace for a longer period.

Strategists say these measures will help alleviate the market pressure that has accumulated over the past few months due to the Fed's portfolio reduction. They expect these purchase plans to be a positive factor for basis trading and SOFR-Fed Funds Rate basis trading. On Wednesday, trading volume in short-term interest rate futures surged, and the two-year basis spread widened to the highest level since April, indicating some relief in short-term market pressure. (Jin10)