UBS: Stablecoins will drive up net demand for short-term US bonds, and there is still room for short-term bond supply to be absorbed

According to a report by Zhitong Finance, UBS had previously anticipated that the rapid expansion phase of short-term US bonds as a proportion of tradable debt had passed. However, the GENIUS Act may bring about a new round of growth. According to the bill, stablecoin issuers must maintain 100% reserve support with short-term, highly liquid, and high-quality assets. The approved reserve assets include: dollar cash, short-term US treasury bond bonds, deposits of insured depository institutions and short-term treasury bond bond repurchase agreements. After the resolution of the debt ceiling issue and the significant expansion of government money market funds, the short-term US Treasury market still has ample absorption capacity. If the GENIUS Act stimulates the demand for more short-term treasury bond, the US Treasury Department can slightly delay the expansion of the issuance scale of interest bearing treasury bond, and there is more room to buy back old bonds with poor liquidity. In any case, UBS expects the Ministry of Finance to keep the relative ratio of short-term treasury bond bonds and interest bearing treasury bond stable.