While overall net government bond issuance is forecast to drop 13%, this is solely due to the U.S. When measured by duration (10-year Treasury equivalents), gross supply is actually projected to increase by 1% year-over-year. This presents a more challenging picture for markets than the headline number suggests.

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.

The Treasury is unlikely to make abrupt changes to debt issuance, like cutting long-end auctions, despite political pressure for lower rates. The institutional memory of the 2001 surprise 30-year bond cancellation, which damaged credibility, constrains it to a "regular and predictable" approach to avoid spooking markets.

The Treasury actively stimulates liquidity by altering its debt issuance strategy. By issuing more short-term T-bills (bought by banks) and fewer long-term bonds, it effectively monetizes fiscal spending. This 'Treasury QE' is a major, under-the-radar source of liquidity for markets.

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.

The Treasury's long-standing forward guidance states it will maintain auction sizes for "at least the next several quarters." Analysts expect this key phrase to be removed, signaling that increases in debt issuance are coming to address a sizable funding gap in 2027.

Despite facing a massive $5.5 trillion funding gap through 2030, the Treasury is expected to delay increases to its coupon auction sizes until November of next year. This decision stems from a slightly improved short-term fiscal outlook and a political desire from the administration to project 'no urgency'.

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.