Despite market speculation about potential cuts to long-end Treasury auction sizes, the primary dealer agenda for the next refunding shows no such intention. The Treasury's focus on other topics suggests it will likely maintain or even increase coupon auction sizes next year, pointing to continued supply pressure.

In response to shifting investor demand and steeper yield curves, Euro area sovereigns have aggressively reduced the weighted average maturity (WAM) of their debt issuance. The average issuance WAM has fallen from a peak of 13 years during the COVID era to a projected 10 years in 2026, reflecting a major strategic shift.

Contrary to fears of a spike, a major rise in 10-year Treasury yields is unlikely. The current wide gap between long-term yields and the Fed's lower policy rate—a multi-year anomaly—makes these bonds increasingly attractive to buyers. This dynamic creates a natural ceiling on how high long-term rates can go.

While the Fed's Reserve Management Purchases will absorb significant T-bill supply, J.P. Morgan predicts the Treasury will still increase coupon auction sizes. This is based on the belief that a prudent debt management strategy will avoid over-reliance on short-term T-bills to prevent financing cost volatility.

Despite recent concerns about private credit quality, the most rapid and substantial growth in debt since the GFC has occurred in the government sector. This makes the government bond market, not private credit, the most likely source of a future systemic crisis, especially in a rising rate environment.

While gross Euro area sovereign bond issuance is set for a new record in 2026, this is primarily driven by Germany. Net issuance for the region will remain similar to 2025 levels, as deficits in other countries are flat or declining, mitigating overall supply pressure.

Despite the Federal Reserve's plan to purchase $490 billion in T-bills in 2026, easing immediate funding pressure, the U.S. Treasury is expected to increase coupon auction sizes in November. This preemptive move aims to mitigate the long-term risks associated with a rising T-bill share of debt, such as financing cost volatility.

The Federal Reserve is expected to buy approximately $280 billion of T-bills in the secondary market next year. This significant demand source provides the Treasury with flexibility, allowing it to temporarily exceed its long-term T-bill share target of 20% without causing market disruption.

Lacking demand for long-term bonds, the Treasury issues massive short-term debt. This requires a larger cash balance (TGA) to avoid failed auctions, draining liquidity from the very markets needed to finance this debt, creating a self-reinforcing crisis dynamic.