Major crypto legislation

This week, Congress passed the GENIUS Act, the first major federal legislation regulating stablecoins. The bill mandates that issuers back their tokens 1:1 with liquid assets, such as U.S. Treasuries, and comply with AML protocols, garnering strong bipartisan support (308–122 in the House). Two companion bills also moved forward: the Anti‑CBDC Surveillance State Act (blocking the Fed from issuing a retail CBDC) and the Digital Asset Market Clarity Act (defining SEC vs. CFTC jurisdiction). President Trump is set to sign GENIUS into law, marking a historic shift toward formal crypto oversight.

• Stablecoin legislation is important as it allows for cheaper and faster movement of currency
• This will ultimately flow through to cheaper costs for consumers, particularly if adopted more broadly as payment rails
• Stablecoins are also a positive for the US dollar, as they will be big consumers of US government debt
• Additionally, providing clear oversight for digital assets will allow for more DeFi projects to thrive and launch
• DeFi (decentralized finance) allows for financing activities like lending and borrowing to be done faster and cheaper
• The Clarity Act will also allow for more “tokenization” of real-world assets, allowing for cheaper and more liquid access to a broader audience
• It is notable that there was bipartisan support for this legislation
• With regulatory clarity, we expect more traditional financial institutions will begin to build in this space

What we can read about the consumer from bank earnings

Bank earnings this week showed solid performance across multiple fronts. JPMorgan reported $45.7 billion in revenue and $15 billion in net income, with trading revenue rising 15% and investment banking fees up 7% YoY. Goldman Sachs posted net revenues of $14.58 billion and net earnings of $3.72 billion, with equities trading revenue surging 36% YoY ($4.3 billion), and investment banking fees up ~26%. Wells Fargo beat estimates with $20.82 billion in revenue, $5.49 billion in net income, but cut its full‑year net interest income guidance to flat with 2024’s $47.7 billion due to margin pressure. American Express saw 9% YoY revenue growth to $17.86 billion, an EPS of $4.08, and a record $416 billion in cardmember spending (+7%).

• The banks were clearly able to take advantage of the post-Liberation Day volatility to drive large gains in their trading business
• Then, as markets recovered, the investment banking segment was the beneficiary
• Importantly, JPMorgan, Wells Fargo, and American Express also discussed the state of the consumer post their announcements
• Both JPMorgan and Wells Fargo described the consumer as stable, which speaks to the health of the underlying economy
• American Express's CFO described the consumer as “Amazingly resilient,” showing the strength of the upper end of the consumer universe

Japan’s long bond yields hit all-time highs

Japan's long-dated government bonds (30 and 40-year JGBs) surged to historic highs, with the 30-year yield hitting ~3.20%, driven by investor concerns over election-fueled fiscal expansion and weakening domestic demand. The Ministry of Finance responded by trimming issuance of long-end maturities, but market volatility persists amid uncertainty over the upper-house results. The bond market’s steepening signals heightened fiscal concerns and a potential re-pricing of Japan’s debt risk at the long end.

• We watch Japan as it gives us insight into how bond investors may approach the US in the future
• For many decades, until a few years ago, Japan had embarked on a very loose monetary regime
• This allowed for the country to run consistent fiscal deficits, and its debt-to-GDP to GDP rose to a staggering 235%
• A major reason why the country has been able to do so is due to the fact that the vast majority of this debt is held domestically, particularly by the Bank of Japan (their Central Bank)
• While the US currently has a more manageable (but all-time-high) debt-to-GDP level of 122%, more of our debt is owned by foreigners
• As Japan is dealing with persistent inflation, its debt has started to trade lower (hence higher rates)
• This could be a precursor to the US, where some argue that even if the Fed lowers interest rates, longer-dated yields may spike higher on the country’s fiscal situation
• Most consumer and corporate credit is priced off the long end of the yield curve, which would mean higher interest rates and a headwind to the economy

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