The U.S. Treasury has a big problem. That kind of funding gap usually forces the government to sell more bonds, which can push yields higher if investors get nervous.
But here is the tricky part. The Treasury announces its quarterly refunding plan - the official word on how many bonds it will auction - on the same week as the November 2026 midterm elections. In fact, the announcement comes just one day after voters go to the polls.
JPMorgan strategists, led by Jay Barry, do not think Treasury officials will change a single word of their current guidance on auction sizes. The reason? They do not want to spook bond markets right when voters are deciding who controls Congress.
The catch: Higher long-term yields tend to hurt the party in power. And Treasury Secretary Scott Bessent has made clear he wants yields to go down, not up. Changing auction guidance could do the opposite.
This is not the first time the Treasury has played it safe near an election. Back in August 2023, a similar shift in auction-size guidance caused bond yields to rise. That memory is still fresh for officials who would rather avoid a repeat.
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Since then, yields on long-term bonds have actually climbed higher. As the JPMorgan team put it in a note to clients, "We are now three months closer to the November elections, and long-end yields have continued to rise."
In plain English - they expect the government to kick the can down the road.
When might that change? JPMorgan says not until 2027 at the earliest. The November refunding lands so close to the midterms that any adjustment now would look political, even if the math says the Treasury needs to start selling more.
For investors, the Treasury's decision has real consequences. If the government holds off on acknowledging it needs to borrow more, bond yields might stay lower in the short term than they would otherwise. Lower yields mean bond prices hold up better, which matters if you own long-term Treasuries.
But here is the flip side. The borrowing need is not going away. At some point, the Treasury will have to sell more bonds, and the market will demand higher yields to buy them.
For stock investors, rising long-term yields tend to slow the economy and make growth companies less attractive.
For now, the government is buying time. The midterm elections will come and go. The refunding announcement will land the next day.
And most likely, nothing will change. But the clock is ticking on that $3.7 trillion gap, and the longer the Treasury waits, the bigger the adjustment could be when it finally happens.
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