J.P. Morgan Chase: Repurchase of bonds by the US Treasury poses a credit risk

Comparative news, according to a Jinshi report, J.P. Morgan strategists warned that the market may think that the US Treasury's unexpectedly attempt to reduce long-term financing costs lacks credibility. Over time, this may push up term premiums and bond yields. The US Treasury Department said on Wednesday that it will at least double the scale of bond repurchases to provide “greater liquidity support,” a move that will depress long-term US bond yields. However, J.P. Morgan said the move was only treating the symptoms rather than the root causes: the US economy is close to full employment, yet there is still a 6% fiscal deficit.

Strategists such as Jay Barry wrote, “Without real fiscal consolidation, we are worried that the market will see this move as lacking credibility. If the Treasury becomes more speculative in managing debt and deviates further from its 'routine and predictable' principles, this could lead to long-term premiums and higher yields.” The size of US Treasury bonds has surpassed $40 trillion, making it more difficult for policymakers to control financing costs, while the US government continues to issue more treasury bonds. According to a market survey, about 60% of respondents believe that the US debt situation will continue to deteriorate until it triggers a major crisis.