Wall Street Revises Forecasts: Will The Federal Reserve Absorb More Than $500 Billion In Short‑Term Treasury Bills Next Year?

The Federal Reserve’s announcement this week of a program to purchase $40 billion of Treasury bills per month—surpassing prior market expectations—prompted major Wall Street banks on Thursday to rapidly revise their 2026 Treasury bill supply forecasts and to anticipate downward pressure on borrowing costs.

The Fed said it will launch the “Reserve Management Purchases” (RMP) program on Friday to rebuild reserve balances in the financial system and ease short‑term interest rates. In addition to RMP operations, the Fed plans to reinvest approximately $14.4 billion of maturing agency debt into Treasury bills in December to further support funding markets.

Market strategists observed that these interventions should relieve pressures that have accumulated during months of balance‑sheet runoff, and they expect the purchases to provide support for swap spreads and SOFR–federal funds basis trades. Following the Fed’s announcement, trading volumes in short‑term rate futures surged and the two‑year swap spread widened to its highest level since April, signaling some easing of short‑term funding strains.

CIBC strategists cautioned, however, that volatility will not be fully eliminated, noting that December’s purchases may not outpace the usual year‑end spike in overnight funding demand when banks curtail repo activity to shore up balance sheets. The Fed’s substantial purchases of short‑dated Treasuries will also reshape market dynamics in the months ahead, potentially making the central bank a dominant buyer in the Treasury bill market. Barclays described the Fed’s aggressive posture as evidence of an “extremely low tolerance” for funding stress.

Barclays now estimates that the Fed could purchase nearly $525 billion of Treasury bills in 2026, well above its prior estimate of $345 billion. The bank projects monthly purchases of about $55 billion beginning in December, sustained through the first quarter, before tapering to roughly $25 billion per month in April—still above earlier expectations. Barclays expects these operations to reduce net Treasury bill issuance to private investors from a previously projected $400 billion to about $220 billion, thereby easing supply pressure.

JPMorgan and TD Securities similarly anticipate the Fed will absorb a larger share of short‑term Treasury issuance. JPMorgan strategists Jay Barry and Teresa Ho project the Fed will maintain $40 billion per month in purchases until mid‑April, then slow to $20 billion per month; combined with roughly $15 billion per month in MBS reinvestments, JPMorgan estimates the Fed will acquire about $490 billion of Treasury bills in 2026, up from an earlier forecast of $280 billion, and that net issuance will fall to approximately $274 billion. JPMorgan’s team noted that the early disclosure of potential purchases underscores the Fed’s heightened sensitivity to market disruption.

Wells Fargo strategists Angelo Manolatos, Mike Schumacher and Erik Nelson estimate that RMP and MBS reinvestments will result in about $425 billion of Treasury bill purchases in fiscal 2026, representing a substantial portion of the Treasury’s net supply. The bank maintains long positions in 30‑year swap spreads and expects the swap‑spread curve to flatten as near‑term contracts lead the widening trend.

Bank of America expects the Fed may need to sustain elevated purchase volumes for an extended period to build adequate reserves and stabilize money‑market rates. Notably, BofA was among the few institutions that correctly anticipated the Fed would announce the start of purchases this month. BofA’s global rates strategy team observed that by mid‑April RMP operations may add only $80 billion of reserves through natural liability growth, whereas the Fed may require about $150 billion to reach its objectives, implying a risk that high purchase rates could persist longer than initially planned.

BofA analysts also noted that if the Fed judges Treasury bill investors to be “adversely affected,” it could shift purchases toward Treasury notes with maturities up to three years to limit investor outflows. These balance‑sheet operations reinforce BofA’s core spread‑trade recommendations: long positions in one‑month and one‑year SOFR–federal funds basis spreads and long positions in two‑year asset‑swap spreads.