Tokenized deposits threaten banks' maturity transformation, with a double-digit duration cut shrinking capacity by $580bn.

This would force banks to hold more high-quality liquid assets, particularly reserves and Treasuries, as evidenced by Brazil's Pix instant payment system, which boosted banks' demand for liquid assets. The mechanism: as tokenized deposits enable instant settlement, depositors can switch banks more easily, raising betas and shortening durations, thereby reducing the maturity transformation that underpins banks' profitability and their role in funding long-term assets. This could tighten credit availability and alter the transmission of monetary policy, as banks adjust their asset portfolios toward more liquid securities.

The upward revision, supported by industrial orders up 1.4% quarter-on-quarter and 4.5% year-on-year, suggests the economy is weathering external shocks, which could reduce pressure on the ECB to tighten further and support bond markets.

The Federal Reserve Board kept the primary credit rate at 3.75% at both its July 20 and July 29, 2026 discount rate meetings, despite formal requests from the Cleveland and Minneapolis Reserve Banks to raise it to 4%. The Board also renewed the secondary and seasonal credit formulas, with the secondary rate set above the primary rate as specified by the formula. On July 29, the Board separately affirmed the FOMC's decision to maintain the federal funds target range and the interest rate on reserve balances at 3.65%.

The minutes show that directors at the two dissenting Reserve Banks cited rising fuel prices and surcharges stemming from global events, along with elevated inflation and consumers becoming increasingly price conscious. Several directors also noted hiring challenges for certain skilled positions. Yet the Board expressed no sentiment for changing the primary credit rate at this time, approving the existing level unanimously.

For public finance investors, the unchanged discount rate and federal funds range signal that the Fed is holding short-term rates steady, which anchors the front end of the yield curve and keeps bank funding costs stable. This directly influences the cost of financing for government debt and the attractiveness of short-dated instruments. The divergence between the two Reserve Banks' requests and the Board's decision highlights internal disagreement about inflation risks, but the Board's action suggests a preference for patience, likely reflecting a view that global supply shocks are temporary.

The US Treasury's announcement to double buybacks of long-dated bonds offered only temporary relief, as market participants judged it insufficient to address the underlying fiscal deficit.

The euro strengthened 0.96% against the dollar to close at $1.17, its highest weekly closing level.

Fitch projects Poland's fiscal deficit at 6.9% of GDP of GDP in 2026, more than double the peer median, highlighting persistent fiscal risks in the region. The US Treasury buyback program, while supportive for long-end prices mid-week, does not change long-term fiscal fundamentals, leaving a fiscal risk premium in place. For investors, the mechanism is clear: geopolitical shocks feed energy and gold prices, which feed inflation expectations and keep central banks cautious, while fiscal expansions in the US and Europe keep term premia elevated.

German government bond yields have risen markedly over the past year, with the overall yield on listed federal securities reaching 3.21% on August 25, 2026, up from 3,12 pct pa in July 2025. The 10-year Bundesanleihen yield stood at 3.24% on the same day, while the 30-year yield reached 3,75 pct pa. This upward trend reflects tighter financial conditions for the German government, directly increasing the cost of new federal debt issuance.

The Bundesbank calculates these Umlaufsrenditen using reference prices from the Frankfurt Stock Exchange, weighting individual bond yields by their market-value outstanding amounts. The bond set is updated monthly, and the yield is an unweighted average with daily structural adjustment. The rise in yields signals that investors demand higher compensation for holding German debt, which could weigh on fiscal expansion plans.

For investors, the mechanism is clear: higher yields on federal securities raise the government's borrowing costs, potentially leading to a larger debt burden or spending adjustments. The yield curve remains upward-sloping, with longer maturities offering higher returns, as seen in the July 2026 monthly data where yields range from 2,82 pct pa for shorter maturities to 3,60 pct pa for longer maturities. This environment may attract investors seeking higher yields, but it also implies a more expensive funding environment for the German state.