REFILE-LIVE MARKETS-Tokenization and potential for Fed rate cuts, anytime, 24/7

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TOKENIZATION AND POTENTIAL FOR FED RATE CUTS, ANYTIME, 24/7

Ben Emons, founder of Fed Watch Advisors, says in a recent TV interview, that Treasury Secretary Scott Bessent highlighted the Treasury’s plan to shift the Treasury curve down by targeting intermediate issuance.

Emons says this "plan" is now being explored through tokenization and blockchain issuance.

In a note out late Wednesday, Emons says that tokenization of Treasuries is already occurring in experimental form.

"The first on-chain financing transaction using tokenized U.S. Treasuries as collateral and USDC as the cash leg was executed over Tradeweb. OpenEden has launched TBILL, the first tokenized money market managed by BNY Mellon, bridging DTCC and blockchain settlement," he writes.

Emons adds that as of August, over $6.7 billion in tokenized Treasuries are outstanding across various platforms. The next step in the process involved settling a Treasury repo trade on the blockchain entirely with both legs, cash, and digital, exchanged sans intermediaries.

According to him, the 24/7 nature of this transaction suggests that if repos are regularly traded and settled over blockchain, Treasury issuance and secondary market trading will ensue, spearheaded by initiatives like BitBonds (Treasuries backed by Bitcoin), and stablecoin integration, utilizing stablecoins for primary issuance and coupon payments.

Thus, as Emons sees it, eventually, and perhaps sooner than envisioned, "rate cuts could become a 24-hour/7-day-a-week phenomenon, as the plumbing of Treasuries (funding, repo) allows for futures and cash Treasuries to expand trading into the weekend."

Additionally, he says "the Treasury could start 'shotgun' issuance, i.e., issue new Treasuries at any moment of the day, when new issues are settled over blockchain in seconds."

(Terence Gabriel)

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