The U.S. government’s efforts to manage pressure in the Treasury market may merely shift the problem down the road as a surge in global debt issuance tests investor demand, according to JPMorgan.
The Treasury is effectively buying back longer-duration bonds while issuing shorter-dated bills, a strategy that can provide temporary relief but leaves the underlying debt burden intact, James Sullivan, JPMorgan’s co-head of global fundamental research, told CNBC’s “Squawk Box” on Friday.
The U.S. Treasury Department, led by Secretary Scott Bessent, on Wednesday announced it would at least double the size of its government debt buybacks, starting Sept. 9 and running through Nov. 4.
Sullivan compared the approach to refinancing longer-term obligations with shorter-term borrowing.
“It’s a little bit like paying your mortgage with your credit card. It can work for a while, but eventually the mismatch starts to become more obvious,” he added.
The intervention may help manage borrowing costs in the near term, but Sullivan’s concern is that it does little to address the bigger problem: a mounting wall of government and corporate debt that ultimately has to find buyers.
“Governments trying to control markets is not a particularly attractive story most of the time.”
The challenge extends beyond the U.S. Sullivan pointed to roughly $40 trillion in U.S. government debt and around $76 trillion across developed-market governments globally, alongside record corporate bond issuance.
Even with strong economic fundamentals, the sheer increase in bond supply matters for markets, Sullivan said. More debt needs to find buyers, potentially requiring issuers to offer investors more attractive yields.
“The only way you balance supply and demand is through price,” he said. That equation is becoming more complicated as some traditional buyers of U.S. government debt pull back.
China’s holdings of Treasurys are at an 18-year low, while U.S. Treasury custody holdings for foreign governments are at their lowest in 14 years.
The borrowing wave is not confined to governments. Corporations are also tapping debt markets heavily as economic growth becomes increasingly capital intensive, driven in part by artificial intelligence infrastructure, reshoring and national-security-related investment.
Leading AI companies have issued $200 billion of debt so far this year, up 80% from a year earlier, according to Sullivan. Spending on data centers and other AI infrastructure is adding to the broader competition for capital.
The implications extend to stocks. Higher bond yields can make fixed-income assets increasingly competitive with equities, particularly when stock valuations are elevated.
Bonds yields are now higher than the earnings yield on the S&P 500, according to JPMorgan data, making investors’ choices between asset classes more difficult.
“The asset allocation decision becomes significantly more complex going forward as we see these environments play out,” Sullivan said.
