Buy the Dip in U.S. Bonds? Analysts Bet on the Fed Following Japan’s Path of Government Bond Purchases

TradingKey - The largest U.S. Treasury sell-off in over two decades is showing signs of easing, bolstered by repeated reassurances from the Treasury Department and rising expectations of potential Federal Reserve intervention—either through bond purchases or interest rate cuts. JPMorgan is now urging investors to “buy the dip” in  Treasuries, citing attractive valuations and relatively high yields.

Following a volatile week in which the 10-year Treasury yield surged by 50 basis points, both the 2-year and 10-year  yields climbed more than 10 basis points on April 14. This rebound was driven by several stabilizing factors: calming remarks from U.S. Treasury Secretary Scott Bessent, easing fears over Trump’s tariff threats, softening long-term inflation expectations, and a return to more rational investor sentiment.

Bob Michele, global head of fixed income at JPMorgan, expressed confidence in the current bond market, describing it as a rare opportunity to “buy low” and lock in elevated yields. In discussions with overseas investors, Michele said that volatility in the U.S. Treasury market had not deterred interest.

Michele cited data for the week ending April 9 showing that foreign central banks, monetary authorities, and international organizations of U.S. Treasuries by $3.6 billion, reversing two consecutive weeks of declines. This uptick in holdings suggests that foreign reserve managers are not retreating from  U.S. debt as previously feared. Michele’s observations align with statements from  Treasury Secretary Bessent and analysis from  Citigroup.

The recovery in Treasury prices also reflects growing market speculation that the Federal Reserve may resort to emergency actions—such as bond purchases or accelerated rate cuts.

Vincent Mortier, Chief Investment Officer at Amundi, Europe’s largest asset management company, commented that the recent jump in the 10-year  yield to 4.5% is "painful but manageable" for the U.S. government. However,  he warned that if the 10-year yield exceeds 5% or the 30-year yield surpasses 5.25%, the Fed may be compelled to intervene by launching a full-scale bond-buying program later this year.

Mortier argued that with economic growth slowing and borrowing costs rising—exacerbated by the Trump administration’s tariff proposals—the U.S. central bank may consider a new round of quantitative easing. By purchasing bonds in the open market, the Fed could push down long-term interest rates and support the economy.

He further suggested that the U.S. might follow a path similar to Japan’s approach to public debt management. Facing twin deficits in trade and government spending, and under increasing economic strain, the U.S. may have little choice but to "nationalize” its debt,  echoing  Japan’s large-scale bond purchases by its central bank.

While around one-third of  U.S. Treasuries are held by foreign investors, Japan’s situation is markedly different: over 90% of Japanese government bonds are owned domestically, primarily by the central bank and local institutions. This high degree of internal ownership has helped Japan mitigate risks associated with credit rating downgrades and capital flight—an option the U.S. may increasingly look toward as fiscal pressures mount.