U.S. Treasury Doubles Long-Term Bond Buybacks! JPMorgan Warns: Short-Term Fix Could Backfire, Pushing Up Term Premium and Yields

The U.S. Treasury announced on Wednesday (19th) that it will at least double the scale of its buyback operations for 10- to 30-year U.S. Treasury bonds, aiming to provide 'greater liquidity support.' Immediately after the announcement, long-term yields declined briefly. However, JPMorgan (referred to as 'JPM') strategist Jay Barry and his team quickly issued a warning: 'With the economy nearing full employment and the fiscal deficit still around 6% of GDP, this move is merely a short-term fix, unlikely to build market confidence, and could ultimately push up term premiums and yields over the long run.'

In their latest research report, JPM's team stated bluntly that without substantive fiscal consolidation, 'the market will perceive this action as lacking credibility.' More critically, if the U.S. Treasury shifts toward an 'opportunistic' debt management strategy, deviating from the principle of being 'regular and predictable,' investors will demand higher compensation, causing term premiums to rise over time.

Currently, U.S. public debt has surpassed the $40 trillion mark, and Washington's bond issuance continues to expand. The contradiction between policymakers issuing debt while simultaneously trying to control costs is becoming increasingly apparent.

According to Bloomberg Intelligence's Markets Pulse survey, approximately 60% of respondents believe the U.S. bond situation will continue to deteriorate until a major crisis erupts.

The spillover effects extend beyond the federal budget. U.S. Treasury yields serve as the anchor for global borrowing costs. If long-term yields rise due to increasing term premiums, this will directly transmit to U.S. mortgage and corporate bond pricing and ripple across global sovereign bonds and exchange rates.

While the U.S. Treasury aims to enhance liquidity and suppress long-term yields through buybacks, the market may respond by 'pricing in higher risk premiums.' This reverse博弈 (game) is emerging as the hidden main theme in global interest rate pricing for the second half of this year.