Reuters on MFS, Stablecoins, T-Bills
Reuters writes "US Treasuries face stablecoin-driven demand surge as supply looms." The piece explains, "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." They quote Yie-Hsin Hung, CEO of State Street Global Advisors, in "keynote remarks at the Money Fund Symposium on Monday," "Stablecoins are drawing significant...demand for the Treasury market." Reuters writes, "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. The article tells us, "[I]f the market capitalization of USDC, a stablecoin issued by Circle (CRCL) 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 justifications ... is that all this demand that's coming from stablecoins ... gives (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." Reuters adds, "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."
