JPMorgan warns: Doubled US Treasury buybacks lack credibility, long-term yields may face renewed upward pressure

Jintou Finance APP has learned that JPMorgan strategists have warned that the market may perceive the US Treasury's unexpected measures to curb long-term financing costs as lacking credibility, and over time, this may push up term premiums and yields.

On Wednesday, the US Treasury announced it will at least double the scale of its Treasury buybacks to provide "greater liquidity support," which prompted a decline in the yield on long-term US government bonds. However, JPMorgan stated that this move only addresses the symptoms, not the root cause: in an economy close to full employment, the US fiscal deficit rate remains as high as 6%.

Strategists including Jay Barry wrote in a report, "Without genuine fiscal consolidation, we are concerned the market will perceive this action as lacking credibility." "If the Treasury becomes more opportunistic in its debt management approach and further deviates from its 'regular and predictable' principles, over time this could lead to higher term premiums and yields."

The US national debt has exceeded 40 trillion dollars, exposing policymakers attempting to control financing costs to greater risks—even as Washington continues to issue more bonds. In a Markets Pulse survey, about 60% of respondents indicated that the US debt situation will continue to worsen until it sparks a major crisis.

The impact extends far beyond the federal budget, as US Treasury yields serve as the benchmark for global financing costs. Rising yields can spill over into US mortgage and corporate debt, as well as global currency and sovereign bonds.

Prior to this latest action, the Treasury had made a series of decisions in recent weeks reflecting growing concern over rising long-term yields—by some measures, long-term yields recently reached their highest levels since 2001. The statement caused the 30-year Treasury yield to drop by 9 basis points to 5.19%, while a long-term Treasury index surged 1.7%, its best single-day performance since February 2025.

Citi advised clients to buy 20-year US Treasuries, suggesting the move aims to keep long-end yields at reasonable levels. Coupled with cooling inflation, Citi expects a strong bond market rebound in the coming months.

"Regular and Predictable"

The particular sensitivity surrounding the Treasury's latest measures stems from its long-standing commitment to the "regular and predictable" principle, aiming not to surprise investors. Treasury Secretary Janet Yellen herself endorsed this approach in the keynote speech at a conference last November.

In 2023, the Treasury reintroduced its buyback program, an initiative conceived over twenty years ago when the government had a fiscal surplus and bought back and canceled higher-cost debt. This time, a core goal is to enhance market liquidity, as traders typically prefer to hold current benchmark US Treasuries with specific maturities, making older Treasuries harder and more costly to trade.

Even so, JPMorgan noted that the timing of the Treasury's announcement was "highly unusual," coming just two weeks after the Treasury published its timetable for buying back old securities. This raises the likelihood that if yields continue rising, the Treasury may reduce the scale of long-end auctions.

However, the US federal government still needs to borrow vast sums. JPMorgan expects that in the next few fiscal years, there will be a funding gap of more than 3.5 trillion dollars, which may require increasing, rather than decreasing, the supply of long-term bonds.

The strategists wrote: "While in our view the likelihood of auction size cuts has increased, we do not believe this will have a lasting effect on lowering long-term yields. We believe that unless action is taken to reduce the deficit, the impact of today's action on long-term yields may only be short-lived."