The U.S. Treasury is already preparing for its next quarterly refunding announcement. The consensus among analysts is for a fairly small rise in the 10-year yield for next year. That 2026 growth forecast remains well above the consensus. Against this backdrop, investors begin to hope for consistent fiscal gymnastics from the Fed. As such, market participants are eagerly awaiting each new development that might shape this unusual process and, in turn, the Treasury’s approach. Additionally, they see the terminal federal funds rate normalizing in the range of 3.00% and 3.25%.
Starting next month, the Federal Reserve will begin making reserve management purchases, mostly T-bills. These monthly buys are expected to be in the neighborhood of $25 billion per month. This strategy is intended to help control liquidity in the financial system, while addressing anticipated increase in T-bills, which are expected to increase by $648 billion in 2026 alone. This growth is an amazing 10% above 2025 levels. This marks a major shift towards T-bills and demonstrates the overwhelming demand for T-bills, caused by an evolving market landscape.
We expect the Federal Reserve’s absorption of T-bills to be a big factor in absorbing this expected supply growth. Deutsche Bank analysts predict the central bank will buy around $459 billion in T-bills over the end of 2026. This smart move will set off a chain reaction that leads to a more stable environment for private investors. By 2027, experts predict that the percentage of T-bills in the Treasury market will increase to 23%. Yet the Fed makes active interventions to keep private investors’ share down at about 20%. This approach is designed to promote an even hand across the outstanding stock of Treasury securities.
Still, even with these advancements, we should not expect any significant policy changes in the coming U.S. Treasury quarterly refunding announcement. Gross coupon auction sizes will be held constant until at least early 2027. This kind of consistency will go a long way in helping all market participants adjust to and work within evolving circumstances. That’s why analysts including Fowler stress the need for stability. The Treasury and the Federal Reserve are continuing to feel their way through uncertain economic times.
This expected mild rise in the 10-year yield is consistent with overall expectations of economic resilience. And with growth projections still pointing toward better-than-expected fundamentals, financial markets are set for a turn that’s more appropriate given these underlying realities. You score a liquidity win handily by pairing T-bill purchases with a constant terminal fed funds rate. This approach assists in furthering long-lasting economic growth.