As U.S. debt keeps growing and new spending adds to the deficit, more Treasuries will need to be issued—putting pressure on the bond market. There’s also concern about who will buy this debt if foreign interest declines.
A new demand source is emerging: stablecoins—a type of cryptocurrency designed to stay at a fixed value, usually tied to the dollar. These are being used more for transactions and payments because they’re low-cost and efficient.
To stay stable, stablecoins are backed mostly by U.S. Treasuries—about 80%, often in short-term bills. The current stablecoin market holds around $240 billion, meaning nearly $200 billion is invested in Treasuries. If growth continues as expected, this could hit $2 trillion in 3 years—leading to $1.6 trillion in Treasury demand.
This would be a large source of demand in the Treasuries market. Also, if the government shifts more debt toward short-term Treasuries, as Treasury Secretary Scott Bessent suggests, this could ease pressure on longer-term bonds and help keep interest rates low and can help them improve.
Source: MBS Highway
By: Jon Iacono