Key Facts
• Bank of America (BofA) predicts the Federal Reserve (Fed) may purchase $2 trillion in Treasury bills (T-bills) over two years.
• This amount equals nearly all T-bills expected to be issued during the same period.
• The Fed aims to align asset and liability durations, reducing interest rate risks.
• The U.S. Treasury has been issuing large volumes of T-bills to address fiscal deficits and rebuild cash reserves.
• Fed’s strategy includes reinvesting mortgage-backed securities (MBS) proceeds and maturing Treasury bonds into T-bills.
• BofA estimates the Fed could allocate nearly 50% of its assets to T-bills.
• T-bill supply projections: $825 billion in fiscal 2026 and $1.067 trillion in fiscal 2027.
• This move could stabilize T-bill demand and ease concerns about market liquidity amid large-scale Treasury issuance.
Summary
The Federal Reserve is expected to adjust its portfolio by purchasing up to $2 trillion in Treasury bills over the next two years, according to Bank of America. This strategy aims to better align asset and liability durations, reduce interest rate risks, and support the U.S. Treasury’s efforts to manage fiscal deficits and rebuild cash reserves. By reinvesting proceeds from mortgage-backed securities and maturing Treasury bonds into T-bills, the Fed could allocate nearly half of its assets to these short-term securities. This adjustment is projected to stabilize T-bill demand and mitigate concerns about market liquidity as the Treasury continues large-scale debt issuance. BofA estimates T-bill supply at $825 billion in fiscal 2026 and $1.067 trillion in fiscal 2027, highlighting the significant role of the Fed’s purchases in supporting the market.
