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The Star
12 hours ago
- Business
- The Star
US Treasuries face stablecoin-driven demand surge as supply looms
BOSTON (Reuters) -The potential for stablecoins to fuel demand for short-term U.S. Treasury securities was a hot topic at a money market fund conference in Boston this week, with investors expecting these digital tokens to absorb a huge supply of government debt later this year. Stablecoins are pegged to highly liquid assets such as the U.S. dollar and the tokens can drive demand for U.S. Treasuries by requiring issuers to hold large, liquid, and safe reserves to support a 1:1 peg to the greenback. "Stablecoins are drawing for the Treasury market," said Yie-Hsin Hung, CEO of State Street Global Advisors, in keynote remarks at the Money Fund Symposium on Monday. She said about 80% of the stablecoin market is invested in either Treasury bills, known as T-bills, or repos, which are repurchase agreements. That represents about $200 billion, roughly less than 2% of the overall Treasury market. "But stablecoins are growing fast, and most likely, will outpace the growth of Treasury supply," Hung said. As more financial institutions and corporations adopt stablecoin for payments, remittances, or decentralized finance applications, issuers need to hold more reserves to back the growing supply. For instance, if the market capitalization of USDC, a stablecoin issued by Circle, increases by $10 billion, the issuer might purchase $10 billion in Treasuries to maintain the peg. Circle, a payments technology company, and Tether, a blockchain-enabled platform, are the two largest stablecoin issuers. Given expectations of looming Treasury supply of as much as $1 trillion by the end of the year, the market is looking for an incremental buyer that would be a source of new demand for U.S. government debt. Stablecoin issuers fit the bill, market participants said. "If they do indeed squeeze this supply balloon on Treasuries and rely on the front end of the curve for debt issuance, we think that one of the that all this demand that's coming from (U.S. Treasury Secretary Scott) Bessent cover in order to make that shift to the shorter end," said Mark Cabana, head of U.S. rates strategy at BofA Securities, during one of sessions at the symposium. Cabana noted that stablecoin issuers tend to buy T-bills and shorter-dated Treasury coupons. Adam Ackermann, head of portfolio management at Paxos, a financial services and technology company, said he has had multiple conversations with the largest banks in the world wanting a stablecoin. "They're calling us and saying: I need a stablecoin in eight weeks. How can we get one?" "What's somewhat concerning is we're just at this fever pitch right now," Ackermann said. "It's great for the industry, but we need to start to put some guardrails on things." Stablecoins' popularity further ramped up after the U.S. Senate passed last week a landmark bill to create a regulatory framework for the token called the GENIUS Act. The Republican-controlled House of Representatives still needs to pass its version of the bill before it heads to President Donald Trump's desk for approval, but the bill's passage bolstered hopes of wider adoption of a once-niche part of the crypto sector. The stablecoin market is worth about $256 billion, according to crypto data provider CoinMarketCap, and is estimated by Standard Chartered to reach $2 trillion by 2028 if the legislation is signed by Trump. "I expect that there will be a proliferation of stablecoins," Cabana said. "It will be an incremental demand source (for Treasuries), I would guess, over the next three to five, certainly 10 years." (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley and Nia Williams)
Yahoo
16 hours ago
- Business
- Yahoo
US Treasuries face stablecoin-driven demand surge as supply looms
By Gertrude Chavez-Dreyfuss BOSTON (Reuters) -The potential for stablecoins to fuel demand for short-term U.S. Treasury securities was a hot topic at a money market fund conference in Boston this week, with investors expecting these digital tokens to absorb a huge supply of government debt later this year. Stablecoins are pegged to highly liquid assets such as the U.S. dollar and the tokens can drive demand for U.S. Treasuries by requiring issuers to hold large, liquid, and safe reserves to support a 1:1 peg to the greenback. "Stablecoins are drawing for the Treasury market," said Yie-Hsin Hung, CEO of State Street Global Advisors, in keynote remarks at the Money Fund Symposium on Monday. She said about 80% of the stablecoin market is invested in either Treasury bills, known as T-bills, or repos, which are repurchase agreements. That represents about $200 billion, roughly less than 2% of the overall Treasury market. "But stablecoins are growing fast, and most likely, will outpace the growth of Treasury supply," Hung said. As more financial institutions and corporations adopt stablecoin for payments, remittances, or decentralized finance applications, issuers need to hold more reserves to back the growing supply. For instance, if the market capitalization of USDC, a stablecoin issued by Circle, increases by $10 billion, the issuer might purchase $10 billion in Treasuries to maintain the peg. Circle, a payments technology company, and Tether, a blockchain-enabled platform, are the two largest stablecoin issuers. Given expectations of looming Treasury supply of as much as $1 trillion by the end of the year, the market is looking for an incremental buyer that would be a source of new demand for U.S. government debt. Stablecoin issuers fit the bill, market participants said. "If they do indeed squeeze this supply balloon on Treasuries and rely on the front end of the curve for debt issuance, we think that one of the that all this demand that's coming from (U.S. Treasury Secretary Scott) Bessent cover in order to make that shift to the shorter end," said Mark Cabana, head of U.S. rates strategy at BofA Securities, during one of sessions at the symposium. Cabana noted that stablecoin issuers tend to buy T-bills and shorter-dated Treasury coupons. Adam Ackermann, head of portfolio management at Paxos, a financial services and technology company, said he has had multiple conversations with the largest banks in the world wanting a stablecoin. "They're calling us and saying: I need a stablecoin in eight weeks. How can we get one?" "What's somewhat concerning is we're just at this fever pitch right now," Ackermann said. "It's great for the industry, but we need to start to put some guardrails on things." Stablecoins' popularity further ramped up after the U.S. Senate passed last week a landmark bill to create a regulatory framework for the token called the GENIUS Act. The Republican-controlled House of Representatives still needs to pass its version of the bill before it heads to President Donald Trump's desk for approval, but the bill's passage bolstered hopes of wider adoption of a once-niche part of the crypto sector. The stablecoin market is worth about $256 billion, according to crypto data provider CoinMarketCap, and is estimated by Standard Chartered to reach $2 trillion by 2028 if the legislation is signed by Trump. "I expect that there will be a proliferation of stablecoins," Cabana said. "It will be an incremental demand source (for Treasuries), I would guess, over the next three to five, certainly 10 years." Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
US bond market braces for surge in Treasury supply in second half
By Gertrude Chavez-Dreyfuss BOSTON (Reuters) -The bond market is bracing for up to $1 trillion of additional U.S. Treasuries supply in the second half of the year once lawmakers address the looming debt ceiling problem, possibly permanently, top rates strategists said on Tuesday. Any new issuance will likely be focused on shorter-dated debt including bills. With the flood of Treasuries, market participants are left to wonder: who is going to buy them all? Treasury issuance is meant to address the U.S. government's huge fiscal deficit. President Donald Trump's sweeping tax-cut and spending bill would lead to a larger-than-expected $2.8 trillion increase in the federal deficit over the decade, despite a boost to U.S. economic output, the nonpartisan Congressional Budget Office projected. The U.S. Senate could vote on Friday on Republicans' tax and spending measure, said Treasury Secretary Scott Bessent on Tuesday, and he was confident the House would then pass that version. "We are just about to go through a level shift," said Mark Cabana, head of U.S. rates strategy at BoFA Securities, during a panel discussion on Tuesday at the Money Fund Symposium in Boston. "You're going to see this big issuance clip and it's coming within the next few months. You can debate exactly when they raise the debt limit, but the X-date is coming soon." Bessent had said that the so-called X-date when the government would exhaust remaining borrowing capacity under the federal debt ceiling would come sometime during the mid-to-late summer. When the debt ceiling is reached the Treasury is unable to increase borrowings, but if it is lifted or eliminated, the government can then issue more debt. Cabana's forecast is for new supply of Treasuries to hit $1 trillion by the end of the year. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, also expects an increase of nearly $1 trillion in issuance this year, with about $700 billion supply in August and September. A surge in Treasury supply could increase repurchase, or repo rates, which refer to the cost of borrowing short-term cash using Treasuries or other debt securities as collateral. Higher Treasury supply typically saturates the market with additional collateral, which can initially lower repo rates due to excess supply. However, if supply exceeds demand substantially, it may lead to higher repo rates as lenders demand more compensation for holding larger volumes of securities. Goldberg thinks this year's supply will be concentrated on the front end of the Treasury curve - the two-year to the seven-year sector. "Our expectation is that the Treasury keeps issuance focused on the very front end of the curve in terms of coupons. We're not expecting auction size increases until the middle to end of next year, so August or November of 2026, and we don't expect any increases in the long end either," Goldberg said. "In fact, I wouldn't be surprised if there are some decreases in size on the long end, but twos, threes, fives, sevens, that's where the Treasury is going to really look to finance themselves, not 10s, not 20s, not 30s. So it's really that and bills." Adding to Goldberg's point, Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. noted that the U.S. Treasury has become so market-sensitive that it is willing to pull back on longer-term issuance if it leads to volatility in yields. It is not just the Treasury Department that has been more cognizant of the market's reaction, he said, but also Japan's Ministry of Finance and the UK. Money market funds, whose assets hit a record $7.4 trillion in June, are well positioned to absorb part of that Treasury supply, the strategists said. However, there has been a modest shift recently away from Treasuries by these money funds and into private repo transactions because of the latter's higher rates. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
