Treasury’s Accelerated Buybacks Of Bonds Only Kick The Issue Down The Road, Top JPMorgan Analyst Says

A top JPMorgan analyst said the Treasury's buybacks of debt only kicks the issue down the road.

"It's a little bit like paying your mortgage with your credit card," said James Sullivan, JPMorgan's co-head of global fundamental research when speaking to CNBC on Friday.

"It can work for a while, but eventually the mismatch starts to become more obvious," he added, noting that it could manage borrowing costs in the near-future, but doesn't really address the increased difficulty of finding buyers for ever-growing U.S. government and corporate debt.

Sullivan went on to say that it's not only the U.S. facing the challenge, but also other countries around the world and corporations that have been issuing record amounts of debt. In the case of the U.S., the issue is compounded by the fact that China's holding of Treasuries is at an 18-year low.

Treasury Secretary Scott Bessent said on Thursday that the accelerated buyback of government debt could be higher than the $4 billion announced on Wednesday after yields rebounded and erased the drop seen after the announcement.

Speaking to CNBC, Bessent said the Treasury Department is going to "make a market" in longer-dated securities where yields have been climbing. "I would note that it could be more than the 4 billion per issue," he added.

The official did acknowledge pressure on longer-dated yields but claimed their levels don't reflect current economic conditions. Part of it is signaling here and to show that we believe that the yields don't reflect the underlying fundamentals," Bessent said.

The Department of the Treasury's move will specifically target the 10-to20-year and 20-to-30 year portion of the market, which had practically not seen buyers since late June.

Yields had dropped significantly, but rebounded quickly. It comes on the same day the U.S. national debt hit $40 trillion. The numbers have moved quickly. Just six months ago, the nonpartisan Congressional Budget Office projected federal borrowing would reach about $39.4 trillion by the end of the fiscal year.

Annual interest payments on the national debt are projected to exceed $1 trillion this year, according to the CBO, putting them roughly on par with the size of the Pentagon's budget.

Interest expenses already consume about 19% of federal revenue, according to the Peter G. Peterson Foundation. That share is projected to rise to 26% by 2036 if current trends continue. The faster pace of borrowing is also bringing Washington closer to another politically explosive debt ceiling fight. Congress raised the legal borrowing limit to $41.1 trillion last year.

Preliminary projections from the Bipartisan Policy Center indicate the government could reach that limit between late winter and midsummer 2027, with the latest borrowing figures pushing expectations toward the earlier part of that range.