Core Insights - The legislation mandates that stablecoin issuers must maintain 100% reserve backing with high-quality, short-term, and liquid assets [1] - The International Bank for Settlements (BIS) estimates that stablecoins have purchased approximately $40 billion in U.S. short-term government bonds, equating to the largest U.S. government money market fund [4] - U.S. Treasury Secretary Yellen believes that a $2 trillion market cap for dollar stablecoins is reasonable, with potential for upward risk [5] Group 1: Stablecoin Market Dynamics - The demand for stablecoins includes a significant portion of "net new" cash demand, with U.S. government money market fund net assets doubling to $7 trillion since 2019, while stablecoin market cap is around $240 billion [5] - The growth of the stablecoin sector will depend on its international usage [6] - The legislation is expected to further expand the use of the dollar globally through stablecoins [7] Group 2: Impact on Treasury Securities - Strong inflows into dollar stablecoins are linked to a decline in the yield of 3-month short-term government bonds, with effects observed on 10-year Treasury yields approximately 15 days later [8] - UBS previously noted that during the late 1990s, the supply growth of short-term government bonds outpaced traditional investor bases, leading to relatively cheaper rates [8][9]

Group 1 - The US Treasury market has experienced significant volatility this year, driven by concerns over rising government deficits, tariff disputes, and changes in foreign buyer demand [1][3] - Investor panic has been primarily fueled by worries regarding Trump's tariff policies and the expanding US budget deficit, which may lead to higher inflation and sustained high interest rates [3][4] - The French bank Société Générale anticipates that the current turmoil in the US Treasury market is unlikely to end in the short term, with major developments expected to impact the market [1][4] Group 2 - Key developments to watch in the US Treasury market include a surge in new debt issuance as the government increases borrowing and the Federal Reserve continues quantitative tightening [4] - The demand for stablecoins, supported by short-term US Treasury bills, may boost demand for government bonds, with stablecoin issuers' asset management expected to grow significantly [4]