JPMorgan Chase: US Treasury Bond Buybacks Pose Credit Risk

BlockBeats News, August 20th: JP Morgan strategists warned that the market may see the U.S. Treasury's unexpected attempt to lower long-term financing costs as lacking credibility. Over time, this could increase term premiums and bond yields.

The U.S. Treasury announced on Wednesday that it will at least double the size of bond buybacks to provide "greater liquidity support," which will lower long-term U.S. bond yields. However, JP Morgan stated that this is just treating the symptoms not the root cause: the U.S. economy is close to full employment but still faces a 6% fiscal deficit.

Strategists including Jay Barry wrote, "Without real fiscal consolidation, we are concerned that the market will see this move as lacking credibility. If the Treasury becomes more clever and deviates further from its 'conventional and predictable' principles in debt management, this could lead to an increase in term premiums and yields."

The scale of U.S. national debt has exceeded $40 trillion, making it harder for policymakers to control financing costs. Meanwhile, the U.S. government continues to issue more treasury bonds. A market survey showed that about 60% of respondents believe that the U.S. debt situation will continue to deteriorate until it triggers a major crisis. (FXStreet)