The GENIUS Act, Stablecoins, and the path to Lower Mortgage Rates
If you're looking at the Federal Reserve to lower mortgage rates, it's not going to happen.
What is a Stablecoin?
Imagine a room full of cash, treasuries bills, and gold, and then issue "tokens" to that room: you now have a stablecoin.
The ENTIRE POINT of stablecoins is that you can have a concrete "value" for a given token ($1USD, ounce of gold, whatever) without "leaving the blockchain" - meaning, you do not have to convert your crypto into cash through the conventional banking system - a fraught, slow, and very, very costly process.
Stablecoins enable liquidity and prove essential to anchoring crypto as payment rails throughout the global economy.
Now, onto mortgage rates and 10 year treasury bonds!
Mortgage Rates Depend on 10 Year Treasury Bond Prices
Mortgages trade off the 10yr Treasury bond: the more 10yr Treasury bonds go up in price, the cheaper your mortgage becomes: higher 10yr Treasury bond prices make mortgages affordable.
At the moment, 10yr Treasury bond yields are roughly where they were 20 years ago, and that price level proves far too low for demand to pick-up in housing, given the stubborn cost-push inflation (zoning, codes, labor, materials, et cetera) afflicting home builders: the mortgage rates are the same as they were 20 years ago, but costs are easily double - "It doesn't pencil", as we say...
... and Now, for a Trick!
Now, if I wanted to do a trick and make mortgages cheaper, without changing anything in respect to government spending, interest rate policy, et cetera: what I could do would be restrict the supply of 10yr Treasury bonds and...
... create a shortage of long-term US debt
Yes, creating a shortage of long-term US debt would, by pure mechanical brute-force, force mortgage rates DOWN.
How Would Government Finance, Then?
Well... if I want to legislate a new, captive buyer (the fancy expression is, "financial repression") of US Treasury BILLS - short-term debt - then... I'm going to issue a LOT of these Treasury BILLS - short term debt - and very, very sparingly issue Treasury bonds (10yr+ term).
Redistribute Financing to Shorter-Term Bonds and Restrict Long-term Treasury Issuance
The entire purpose of the GENIUS act(Stablecoin bill) revolves around creating the mechanism by which the crypto investors, requiring an entirely separate money market, has now synthesized demand for short-term US treasury bills that did not exist, before.
Stablecoins will Make Mortgages Great, Again
It is through the outsized SKEW in demand for shorter-term Treasuries that we get the "magic equilibrium" whereby stablecoins are "hostage" to liquidity requirements(codified in the GENIUS act, of course) and must purchase Treasury bills, thereby allowing the US treasury to continue to function and skew its issuance towards shorter-term debt, yet "starve" the longer-end of the yield curve from supply and keep long-term bond rates down.
Implications for Banks, CRE, and Your Home
Rates likely will come down, meaningfully, without any action from the Fed. As long as the Treasury coordinates its issuance with the demand uptake from the stablecoin issuers, the significantly reduced supply of longer-term debt necessarily forces 10yr rates and consequently mortgage rates down, without the Fed touching short-term rates or any outsized austerity commitments beyond those already signaled to the market.
Happy shopping!