JPMorgan's fixed income strategy team, led by Jay Barry and colleagues, stated that the Federal Reserve will most likely keep interest rates unchanged on Wednesday, though there may be more than one hawkish dissent; for the Treasury market, next week's quarterly refunding announcement from the Treasury Department is the genuine headline event.
The Fed is expected to stand pat, with hawkish dissents emerging. Ahead of the policy meeting, Treasury yields remained range-bound, with the curve flattening by 1 basis point. JPMorgan aligns with market consensus in expecting the Fed to hold steady, but Cleveland Fed President Hammack and Dallas Fed President Logan are expected to cast hawkish dissenting votes, with Minneapolis Fed President Kashkari also at risk of joining. The real point of interest lies in how Chair Warsh will explain why the Fed chose to hike in September when core PCE was running at 0.2% month-over-month, yet opted to wait and see when the next reading is expected to come in at 0.3%. JPMorgan believes that if Warsh avoids providing an explanation, the market will interpret it as a dovish signal.
Refunding preview: size unchanged, language should change. The Treasury will release its quarterly borrowing estimate on November 2 and the full refunding announcement on November 4. JPMorgan expects coupon auction sizes to remain unchanged. The underlying figures are: a fiscal 2026 deficit of $1.992 trillion, only $28 billion narrower than the bank's forecast; the fiscal 2027 deficit forecast remains at $1.960 trillion. This corresponds to private-sector net borrowing of $2.038 trillion in 2026 and $2.202 trillion in 2027, with net Treasury bill supply set to increase by $991 billion in 2027, the largest amount since 2023. JPMorgan states bluntly that from a prudent debt management perspective, the Treasury should remove the word "at least" from its guidance that it "expects to maintain auction sizes for the next several quarters." In fact, the Treasury Borrowing Advisory Committee (TBAC) already recommended in August updating the language to preserve flexibility. But the Treasury's aversion to yield levels is evident: in August it changed "assessing potential increases" to "assessing future changes," and two weeks later unexpectedly raised long-end buyback sizes. Based on this, the bank judges that existing guidance will persist through 2027, with auction sizes unchanged until August 2027, after which a multi-quarter increase cycle will begin, concentrated in the 2-year to 10-year sector.
The $4.1 trillion gap. Under current auction arrangements, the funding gap for fiscal years 2027 through 2030 reaches $4.1 trillion. The report argues that cutting long-end auctions to suppress yields lacks structural merit and would only shift funding pressure toward short-term debt. By its projections, the share of T-bills in marketable debt will rise to 24% by the end of 2027 and 25% by the end of 2028, with the weighted average maturity of outstanding debt shortening by about 3 months to 66.9 months over the next two years. Large funding gaps will emerge in the coming years, but the elasticity of T-bill demand is questionable: money market fund growth has slowed to its weakest pace in years, foreign official holdings have declined in recent months, stablecoin sizes have stagnated for 18 months, and dealers are being forced to absorb more supply. In contrast, long-end demand is red-hot: end-user demand for 30-year auctions this year has been the strongest on record.
T-bill share of marketable debt trending toward 25%. On positioning changes, the bank's Treasury client survey shows duration overweight has risen to the highest level since November 2025, and it recommends continuing to hold the 10s/30s steepener strategy while closing the long 10-year IOTA (the spread between inflation swaps and TIPS), which has lost 2.5 basis points since inception. On the data front, U.S. CPI inflation swaps have averaged $11.6 billion in daily volume this year, up 57% year-over-year, equivalent to 48% of TIPS volume. Technically, the 2-year Treasury yield faces resistance at 4.60%-4.63%; unless the S&P 500 breaks below the key 7,500-7,600 support, front-end rates are expected to remain range-bound in the fourth quarter, with the upper bound seen at 5.00%; near-term support lies at 4.825%, and if yields continue to decline, the 4.35%-4.43% zone represents a more solid floor.
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