The Federal Reserve's bond purchases exceeded expectations, and Wall Street collectively revised its 2026 forecast

The Federal Reserve's plan to buy $40 billion a month of short-term Treasuries has exceeded market expectations, triggering a series of revisions to Wall Street banks' forecasts for 2026 debt issuance while also driving down borrowing costs.
Barclays estimated that the Fed's eventual purchases of short-term Treasuries in 2026 could be close to $525 billion, well above its previous forecast of $345 billion, with the Fed's aggressive move indicating its "extremely low tolerance" for funding pressures.
JPMorgan Chase and TD Securities also now see the Fed absorbing a larger amount of debt, while Bank of America expects the Fed may need to maintain this faster pace of purchases for longer in order to replenish enough reserves and stabilize money market interest rates.
Strategists said the measures would help ease market pressure that has built up for months as the Federal Reserve tapers its holdings. They expect the purchases to be a bullish factor for swap spreads and the SOFR-federal funds basis trade. Trading volumes in short-term interest rate futures surged on Wednesday, with the two-year swap spread widening to its highest level since April, indicating that short-term market pressure has eased. (Golden Ten)