Bank of America’s (BAC) rates strategy team said the U.S. Treasury market is increasingly shaped by two emerging forces: stablecoin demand for T-bills and the tokenization of government debt-related assets.
BofA views stablecoins as less of a game-changer for Treasuries than for money market mutual funds (MMFs), where their higher-yield potential represents a competitive challenge, the Wall Street bank said in a report Monday.
The bank’s analysts expects stablecoin demand for Treasury bills to grow gradually, in the order of $25 billion to $75 billion over the next 12 months, but not enough to meaningfully shift bill market dynamics.
Stablecoins are cryptocurrencies whose value is tied to another asset, such as the U.S. dollar or gold. They play a major role in cryptocurrency markets, providing among other things a payment infrastructure, and are also used to transfer money internationally.
According to BofA, some MMF clients are showing increased interest in tokenization, viewing it as a defensive move against stablecoins.
The report noted that in July, BNY Mellon (BK), alongside Goldman Sachs (GS), rolled out blockchain-based technology to maintain records of ownership in select MMF shares.
The effort, spurred in part by stablecoin growth and the GENIUS Act, marked the first rollover of tokenized MMF shares.
With stablecoins currently restricted from paying yield, money market funds see a narrow window to tokenize and offer competitive rates before regulatory changes or workarounds erode that advantage, the report added.
Read more: Stablecoin Supply to Grow as Much as $75B Following Passage of GENIUS Act, BofA Says