J.P. Morgan strategists warned that the US Treasury's unexpected attempt to curb long-term borrowing costs may make it difficult to gain the trust of the market; over time, it may instead push up term premiums and yields. The US Treasury Department said on Wednesday that it will at least double the scale of the 10-30 year treasury bond repurchase operation with the aim of providing “greater liquidity support,” leading to lower US long-term bond yields. However, J.P. Morgan said the move was only treating the symptoms rather than the root causes: at a time when the economy is nearing full employment, America's fiscal deficit is still equivalent to 6% of GDP. Jay Barry and other J.P. Morgan strategists wrote in a report: “Without real fiscal consolidation, we are worried that the market will see this action as lacking credibility.” They pointed out that if the Treasury takes a more opportunistic approach to debt management and deviates further from its “conventional and predictable” principles, it could lead to term premiums and rising yields over time.

J.P. Morgan strategists warned that the US Treasury's unexpected attempt to curb long-term borrowing costs may make it difficult to gain the trust of the market; over time, it may instead push up term premiums and yields. The US Treasury Department said on Wednesday that it will at least double the scale of the 10-30 year treasury bond repurchase operation to provide “greater liquidity support,” leading to lower US long-term bond yields. However, J.P. Morgan said the move was only treating the symptoms rather than the root causes: at a time when the economy is nearing full employment, America's fiscal deficit is still equivalent to 6% of GDP. Jay Barry and other J.P. Morgan strategists wrote in a report: “Without real fiscal consolidation, we are worried that the market will see this action as lacking credibility.” They pointed out that if the Treasury takes a more opportunistic approach to debt management and deviates further from its “conventional and predictable” principles, it could lead to term premiums and rising yields over time.