The Federal Reserve's bond purchase scale exceeded expectations, leading Wall Street to collectively revise the 2026 forecast

On December 12, the Federal Reserve announced plans to purchase $40 billion worth of short-term U.S. Treasury securities each month, exceeding previous market expectations. The plan has prompted a series of revisions to Wall Street banks’ debt issuance forecasts for 2026 and has also driven down borrowing costs. Barclays estimates that the total amount of short-term U.S. Treasuries the Fed will ultimately buy in 2026 could approach $525 billion, significantly higher than the previous forecast of $345 billion. The Fed’s aggressive move indicates a “very low tolerance” for financing pressures. JPMorgan Chase and TD Securities also believe the Fed will absorb larger-scale debt. Bank of America predicts that, to replenish sufficient reserves and stabilize the money market rates, the Fed may need to maintain this faster purchase pace for a longer period. Strategists say these measures will help ease market pressures accumulated over months due to the Fed’s reduction of holdings. They expect these purchase plans to be positive factors for swap spreads and SOFR-Federal Funds rate basis trades. On Wednesday, trading volume in short-term interest rate futures surged, with the two-year swap spread widening to its highest level since April, indicating that short-term market pressures have eased. (Jinshi)