Geoff Kendrick: Why Stablecoins Are Bullish for Treasuries #stablecoins #treasuries #crypto #finance

Key Concepts

• Stablecoins
• Emerging Market Savings
• US Treasury Bills (T-bills)
• Yield Curve
• Dollar Inflows

Stablecoin Market and Emerging Market Savings

The current global stablecoin market capitalization is approximately $300 billion. A significant portion, about two-thirds of this total, is driven by emerging market savings. This trend indicates that individuals and entities in politically or economically unstable regions are seeking to move their assets into stable, liquid, and trustworthy forms of currency. The speaker theorizes that this demand for stablecoins as a savings vehicle will continue to grow over time.

Impact on US Treasury Demand

This increasing demand for stablecoins, particularly those backed by US Treasury Bills (T-bills), has a direct positive impact on the US Treasury. Specifically, it represents new demand for T-bills, as stablecoins often require 100% T-bill backing. Crucially, this demand originates from outside the US, meaning it's "all coming from other locations." Furthermore, these investments are primarily in "super front-end" T-bills, referring to short-term maturities.

Implications for the US Yield Curve and Monetary Policy

The speaker posits that when this stablecoin demand becomes substantial enough (estimated to be within the next 12 months), it will enable the US Treasury to issue more short-term T-bills ("super front-end") and less long-term debt ("debt out the curve"). This shift in supply dynamics is expected to lower yields on longer-dated debt.

• Yield Curve Flattening: The reduction in long-term debt issuance and increased demand for short-term T-bills will likely lead to a flatter US yield curve.
• Impact on Mortgage Rates: Lower long-term yields could translate to lower mortgage rates in the US. The speaker suggests this could occur "just in time for the midterms in November 2026," implying a potential political motivation or consequence.

Dollar Strength and Emerging Market Capital Flows

The increasing demand for dollar-denominated stablecoins, backed by US assets, also has implications for the US dollar.

• Dollar Positive: Large inflows of capital from emerging markets to purchase these stablecoins and their underlying assets will lead to increased demand for the US dollar.
• Asset Purchases: This dollar buying is associated with emerging market investors acquiring assets, further strengthening the dollar's position.

Conclusion

The growing use of stablecoins, particularly for savings in emerging markets, is creating new demand for US Treasury Bills. This demand, concentrated in short-term instruments, is projected to influence the US yield curve by making it flatter and potentially lowering long-term interest rates, including mortgage rates. Concurrently, these capital flows are expected to bolster the strength of the US dollar.