Latest news with #DavideBarbuscia
Yahoo
3 days ago
- Business
- Yahoo
Analysis-Stablecoins' step toward mainstream could shake up parts of US Treasury market
By Hannah Lang and Davide Barbuscia (Reuters) -As stablecoins take a step toward becoming mainstream, some segments of the U.S. Treasury market, notably securities with short-term maturities, could be vulnerable to volatility as they become more closely tied to the world of cryptocurrency. Congress is poised to pass legislation establishing a regulatory framework for stablecoins, expected to help legitimize the dollar-pegged cryptocurrencies which are commonly used by crypto traders to move funds between tokens. Proponents of the bill argue that clear rules will spur further stablecoin activity, and support a growing sector of buyers of short-term U.S. government debt, or T-bills, that are typically considered cash-equivalent securities. But others worry a larger footprint for a relatively new and more volatile industry could in turn spur volatility in the bills market. "In the event of a sudden loss of confidence, regulatory pressure, or market rumors, this could trigger large-scale liquidations, potentially depressing Treasury prices and disrupting fixed-income markets," said Cristiano Ventricelli, vice president and senior analyst of digital assets at Moody's Ratings. "A problem in the stablecoin sector could spill over into broader financial markets, affecting institutions holding similar assets or (that) rely on stablecoin liquidity," he added. If signed into law, the stablecoin bill would require tokens to be backed by liquid assets - like U.S. dollars and short-term Treasury bills - and monthly disclosures from issuers on the composition of their reserves. That means if stablecoins are expected to grow, issuers will have to purchase more T-bills to back their assets. The bill could be passed by the Senate as early as next week and could eventually increase the amount of U.S. Treasuries held by stablecoin issuers such as Tether and Circle, the latter of which debuted on the NYSE on Thursday. They together hold $166 billion in U.S. Treasuries, according to a report by Bain & Company's financial services practice. The stablecoin market, currently about $247 billion according to crypto data provider CoinGecko, could grow to $2 trillion by 2028 if legislation were to pass, Standard Chartered estimated. U.S. Treasury Secretary Scott Bessent encouraged lawmakers to pass legislation to codify federal rules for stablecoins, arguing that it could lead to a surge in demand for U.S. government debt. Currently, there are about $29 trillion in Treasury securities outstanding, of which $6 trillion are bills. RED FLAGS In an April research note, JP Morgan analysts estimated that stablecoin issuers could become the third-largest buyer of Treasury bills in the coming years. That raises red flags for some, who worry that would lead to closer ties between the crypto ecosystem and the traditional financial world. The Treasury Borrowing Advisory Committee, a group of banks and investors that advise the government on its funding, said in a study in April that growth of the stablecoin market at the expense of bank deposits could reduce banks' demand for U.S. Treasuries, as well as have an impact on credit growth. "If (stablecoin issuers) have to move those Treasuries quickly, or the market demands that, it could create some credit crunches there," said Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform. Hays said this assumes that stablecoins become more widely used after legislation passes. Money market funds, which invest in short-term debt, could be impacted. Money market expert Pete Crane, president of Crane Data, said money funds are watching stablecoin closely but the size of the market would have to become significantly bigger to create concerns over financial stability. "Treasury bills are normally so short (in maturity) that people don't concern themselves with price movements, but of course in case of a rapid liquidation the price is going to go down," he said. Issues with stablecoins have not so far been large enough to cause systemic problems but the calculus could shift if federal legislation were to spur widespread adoption. In 2022, a meltdown in the crypto markets sent Tether's stablecoin below its dollar peg, which caused no impact on the Treasury market. At the time, then-U.S. Treasury Secretary Janet Yellen said stablecoins like Tether didn't pose a systemic risk to the financial system because they were too small in scale. In 2023, Circle's USD Coin also lost its dollar peg after the company revealed it held a portion of its reserves at failed Silicon Valley Bank. Circle and Tether declined comment. POTENTIAL UPLIFT TO MARKET Still, some argue that there could be benefits from increasing demand for government debt. "If we pass stablecoin legislation, dollars will be exported around the world, which will extend the strength of the dollar as the world's reserve currency," said Matt Hougan, chief investment officer at Bitwise Asset Management, a crypto asset manager. Roger Hallam, global head of rates at Vanguard, said higher demand for short-term government debt instruments could incentivize the Treasury Department to increase T-bill issuance, rather than long-dated debt, to cover its deficit funding need. Yields of long-dated U.S. debt have been rising recently, partly due to concerns over the country's fiscal health. "You could choose to issue more bills to meet that demand, which would relieve some of the tensions we currently see in the market ... around the scale of future issues and who's going to buy all these bonds," Hallam said.
Yahoo
3 days ago
- Business
- Yahoo
Analysis-Stablecoins' step toward mainstream could shake up parts of US Treasury market
By Hannah Lang and Davide Barbuscia (Reuters) -As stablecoins take a step toward becoming mainstream, some segments of the U.S. Treasury market, notably securities with short-term maturities, could be vulnerable to volatility as they become more closely tied to the world of cryptocurrency. Congress is poised to pass legislation establishing a regulatory framework for stablecoins, expected to help legitimize the dollar-pegged cryptocurrencies which are commonly used by crypto traders to move funds between tokens. Proponents of the bill argue that clear rules will spur further stablecoin activity, and support a growing sector of buyers of short-term U.S. government debt, or T-bills, that are typically considered cash-equivalent securities. But others worry a larger footprint for a relatively new and more volatile industry could in turn spur volatility in the bills market. "In the event of a sudden loss of confidence, regulatory pressure, or market rumors, this could trigger large-scale liquidations, potentially depressing Treasury prices and disrupting fixed-income markets," said Cristiano Ventricelli, vice president and senior analyst of digital assets at Moody's Ratings. "A problem in the stablecoin sector could spill over into broader financial markets, affecting institutions holding similar assets or (that) rely on stablecoin liquidity," he added. If signed into law, the stablecoin bill would require tokens to be backed by liquid assets - like U.S. dollars and short-term Treasury bills - and monthly disclosures from issuers on the composition of their reserves. That means if stablecoins are expected to grow, issuers will have to purchase more T-bills to back their assets. The bill could be passed by the Senate as early as next week and could eventually increase the amount of U.S. Treasuries held by stablecoin issuers such as Tether and Circle, the latter of which debuted on the NYSE on Thursday. They together hold $166 billion in U.S. Treasuries, according to a report by Bain & Company's financial services practice. The stablecoin market, currently about $247 billion according to crypto data provider CoinGecko, could grow to $2 trillion by 2028 if legislation were to pass, Standard Chartered estimated. U.S. Treasury Secretary Scott Bessent encouraged lawmakers to pass legislation to codify federal rules for stablecoins, arguing that it could lead to a surge in demand for U.S. government debt. Currently, there are about $29 trillion in Treasury securities outstanding, of which $6 trillion are bills. RED FLAGS In an April research note, JP Morgan analysts estimated that stablecoin issuers could become the third-largest buyer of Treasury bills in the coming years. That raises red flags for some, who worry that would lead to closer ties between the crypto ecosystem and the traditional financial world. The Treasury Borrowing Advisory Committee, a group of banks and investors that advise the government on its funding, said in a study in April that growth of the stablecoin market at the expense of bank deposits could reduce banks' demand for U.S. Treasuries, as well as have an impact on credit growth. "If (stablecoin issuers) have to move those Treasuries quickly, or the market demands that, it could create some credit crunches there," said Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform. Hays said this assumes that stablecoins become more widely used after legislation passes. Money market funds, which invest in short-term debt, could be impacted. Money market expert Pete Crane, president of Crane Data, said money funds are watching stablecoin closely but the size of the market would have to become significantly bigger to create concerns over financial stability. "Treasury bills are normally so short (in maturity) that people don't concern themselves with price movements, but of course in case of a rapid liquidation the price is going to go down," he said. Issues with stablecoins have not so far been large enough to cause systemic problems but the calculus could shift if federal legislation were to spur widespread adoption. In 2022, a meltdown in the crypto markets sent Tether's stablecoin below its dollar peg, which caused no impact on the Treasury market. At the time, then-U.S. Treasury Secretary Janet Yellen said stablecoins like Tether didn't pose a systemic risk to the financial system because they were too small in scale. In 2023, Circle's USD Coin also lost its dollar peg after the company revealed it held a portion of its reserves at failed Silicon Valley Bank. Circle and Tether declined comment. POTENTIAL UPLIFT TO MARKET Still, some argue that there could be benefits from increasing demand for government debt. "If we pass stablecoin legislation, dollars will be exported around the world, which will extend the strength of the dollar as the world's reserve currency," said Matt Hougan, chief investment officer at Bitwise Asset Management, a crypto asset manager. Roger Hallam, global head of rates at Vanguard, said higher demand for short-term government debt instruments could incentivize the Treasury Department to increase T-bill issuance, rather than long-dated debt, to cover its deficit funding need. Yields of long-dated U.S. debt have been rising recently, partly due to concerns over the country's fiscal health. "You could choose to issue more bills to meet that demand, which would relieve some of the tensions we currently see in the market ... around the scale of future issues and who's going to buy all these bonds," Hallam said. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
29-05-2025
- Business
- Yahoo
Trump tariff setback could hasten US debt ceiling deadline, says Barclays
By Davide Barbuscia NEW YORK (Reuters) - A court ruling blocking most of U.S. President Donald Trump's import duties could add uncertainty around when the government will no longer be able to pay all its obligations without raising the U.S. debt ceiling, Barclays analysts said. A U.S. trade court blocked most of President Donald Trump's tariffs in a sweeping ruling on Wednesday that found the president overstepped his authority by imposing across-the-board duties on imports from U.S. trading partners. The Trump administration filed a notice of appeal and questioned the authority of the court. The U.S. government reached its statutory borrowing limit in January and began employing "extraordinary measures" to keep it from breaching the cap and risking a potential default. "Additional tariff revenues were likely to push the x-date back and lack of those is likely to keep it around late August," Barclays analysts said in a note on Thursday. The so-called x-date is when the government will no longer be able to pay all its obligations. "While the administration ultimately could pursue other avenues to achieve the same tariff rates, or it might prevail through the courts, that may not be resolved in short order so the x-date forecast remains quite in flux," they said. The analysts had estimated the Treasury General Account would dip slightly below $100 billion before mid-September. After the court ruling, the X-date could fall in late August or early September, they said. Treasury Secretary Scott Bessent this month urged lawmakers to extend the U.S. government's borrowing authority by mid-July, warning that there was a "reasonable probability" the federal government would run short of cash to cover its obligations by August. Republicans who control the House of Representatives and the Senate are trying to advance a sweeping package of tax cuts and spending hikes that would also raise the debt limit by at least $4 trillion. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
20-05-2025
- Business
- Yahoo
Moody's downgrade ripples through bond market, causes worries for stocks
By Davide Barbuscia and Lewis Krauskopf NEW YORK (Reuters) -Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations. Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy. "Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.," said Campe Goodman, fixed-income portfolio manager at Wellington Management Company. Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday. Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday. Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income. Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. "I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?" Miskin said. Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%. In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been "an important level" for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold. The price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG Datastream. Wilson, however, said while a break above 4.5% in the 10-year yield "can lead to modest valuation compression ... we would be buyers of such a dip," he said in the note, citing the recent U.S.-China trade truce as positive for equity markets. The downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory. It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared. "You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through," said Ross Mayfield, investment strategist at Baird. Federal Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of capital. The ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on Monday. Still, it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt. "There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak," Goodman said.
Yahoo
07-05-2025
- Business
- Yahoo
Investors at Milken eye foreign shores as tariffs cloud US outlook
By Davide Barbuscia and Svea Herbst-Bayliss BEVERLY HILLS, California (Reuters) -Market uncertainty caused by U.S. President Donald Trump's erratic policymaking and aggressive stance on tariffs hung heavily over an investor gathering in Los Angeles this week, with many saying it is time to pivot to non-U.S. assets for more clarity. Concerns over the U.S. economic trajectory, and growing chances of an imminent recession fueled by White House trade policies were major topics at the Milken Institute Global Conference in Beverly Hills, California, where Wall Street dealmakers and global investors gathered to raise capital, sell companies and get a handle on the industry's mood. On panels and in more than a dozen private interviews on Monday and Tuesday, attendees said the U.S. economy's size and depth of its capital markets left few viable alternatives for a dramatic shift away from American assets. Many, however, said the volatility was pushing them to consider higher allocations to non-U.S. markets, Europe in particular. "We've spent a lot of time focused on the U.S. and Europe, and historically, we have had a little bit of a bias towards the U.S.," said Purnima Puri, governing partner at HPS Investment Partners, a New York-based credit investment firm. "We do think Europe is starting to look significantly more interesting, and that's a market we're spending time on," she said on stage at the conference on Tuesday. Entrepreneur Andre Loesekrug-Pietri elicited grins and pats on the back as he walked the halls sporting a green baseball cap with the words "Make Europe Great Again," in a tongue-in-cheek poke at Trump's red "Make America Great Again" hats. While many downplayed the risk of capital outflows from the U.S. that spooked markets in the immediate aftermath of Trump's tariff announcement last month, the search for alternative geographies was a major theme at the event. Some bankers characterized it as a chance to diversify portfolios with too much U.S. exposure, particularly earlier this year and late last year, when the market was betting Trump's second presidency would boost the economy through deregulation and tax cuts. Contributing to the shift are Europe's improved growth prospects and lower asset valuations. "At the start of the year, I think the view was that the U.S. was the place to be, and that's where capital is going to flow, and ... that has shifted differently," said Lee Kruter, partner and head of performing credit at GoldenTree Asset Management, speaking on stage.
