DEEP RESEARCH · ASSET ALLOCATION
Rising U.S. Treasury Yields and America’s Response Options
A liquidity-policy map for rate pressure driven by tariffs, corporate tax cuts, and Treasury-market stress
0. Bottom line first
U.S. Treasury yields are rising more than usual because of factors such as tariffs and corporate tax cuts. The memo argues that this should not be viewed only as a crisis risk; it is also necessary to watch the liquidity-easing tools the U.S. may use to stabilize yields.
Interpretation: The basic tools are the GENIUS Act and SLR relief. If conditions are judged to be a crisis, ending QT and using the Standing Repo Facility are also waiting in the toolkit. If these tools are activated, they may stabilize rates but also create liquidity that could feed asset-price bubbles.
1. The big picture of the response toolkit
The core of the post is to group the liquidity measures that could lower U.S. Treasury yields: the GENIUS Act as a stablecoin regulation bill, SLR relief to expand banks’ Treasury-buying capacity, ending QT to stop liquidity drain, and Standing Repo to control rate spikes.
2. GENIUS Act: stablecoins and Treasury demand
Official fact: The memo interprets “Genius Act” as the GENIUS Act or a related U.S. stablecoin regulation bill. It is described as a framework for regulating stablecoins.
Stablecoins are digital assets pegged to fiat currencies such as the U.S. dollar, and issuers generally hold a significant portion of reserves in safe assets such as U.S. Treasuries. If the GENIUS Act passes and provides clear regulation and legal stability, it could promote stablecoin market growth, which could increase Treasury-buying demand from stablecoin issuers.
The liquidity effect is indirect, coming from market growth rather than direct liquidity injection. The post notes that some analyses discuss the possibility of trillions of dollars of Treasury demand if a clear regulatory framework supports stablecoin market expansion.
3. SLR relief: Treasury-buying capacity for banks
SLR, or Supplementary Leverage Ratio, relief is described as excluding banks’ Treasury holdings from risk assets so that banks can gain additional room to buy Treasuries. This has the effect of increasing bank liquidity.
| Measure | Source estimate | Core effect |
|---|---|---|
| Ease SLR from 5% to 4%, down 1pp | More than about $3 trillion in added liquidity expected | More bank capacity to buy Treasuries |
| Ease SLR to 3.5%, down 1.5pp | Nearly about $6 trillion in added liquidity expected | Larger Treasury demand base |
| Common market expectation | $1-2 trillion of liquidity inflow | Actual expectations are more conservative |
4. Ending QT and Standing Repo
Ending QT means the Federal Reserve stops shrinking its balance sheet, preventing further liquidity drain from the market. It may be considered when warning signs appear around rising short-term rates. The post estimates that ending QT could create about $500 billion per year in liquidity headroom by avoiding planned reductions in Treasuries and MBS.
The Standing Repo Facility is described as a policy in which the Fed takes Treasuries as collateral from financial institutions and supplies liquidity, effectively setting a rate ceiling. This can control sharp market-rate spikes. The memo says liquidity can be supplied without limit until markets stabilize, while the formal limit is around $500 billion and actual supply can vary with market conditions.
Stops liquidity drain
The source mentions a possible liquidity cushion of about $500 billion per year.
Rate ceiling role
A Treasury-collateral liquidity facility used to control market-rate spikes.
Bubble risk
Rate-stabilization measures can also expand liquidity for asset markets.
5. Final judgment
These measures are connected and can materially affect liquidity flows. When watching rising U.S. Treasury yields, the point is not only to consider crisis risk but also to consider how the U.S. can create Treasury demand and supply liquidity.
Sources
- Original Naver blog post: https://m.blog.naver.com/PostView.naver?blogId=star_of_self&logNo=223879058045