JPMorgan: Weak demand for U.S. short-term Treasury bonds is likely to persist in 2027

JPMorgan's research team said that cooling demand for U.S. short-term Treasury bills has driven their recent underperformance relative to interest rate swaps, and that this situation will be difficult to reverse quickly. In a report published by strategists Jay Barry, Pankaj Vohra, Amanda Berke and Molly Herckis, they noted that money market fund assets under management have stalled over the past two months, with weighted average maturities shortening further. "Even with a seasonal rebound expected in the fourth quarter, we expect overall assets under management growth in 2026 to be lower than in the previous two years." Meanwhile, "foreign official institutions' holdings of short-term U.S. Treasuries fell by $145 billion in the four months through August, with their share of the Treasury bill market dropping to the lowest level since May 2024; stablecoin assets under management have also stagnated over the past year." "While there is room for overseas demand to recover, we expect weak growth in money market fund assets next year; a significant expansion in stablecoin assets under management depends on a recovery in the crypto market." The strategists concluded: "Based on the above supply-demand dynamics, we expect it will be difficult for Treasury bill prices to strengthen markedly next year."