Stablecoin Demand Fuels Short-Term Debt but Fails to Address Long-Bond Issue
The US Treasury is turning to stablecoins to fund its short-term debt needs. According to a recent development, Washington has two debt-market stories running at once. The first involves permitted payment stablecoins channeling reserves into cash-like instruments and Treasuries with no more than 93 days remaining.
The federal framework for permitted payment stablecoins was enacted in July 2025 but is expected to take effect by January 18, 2027. Eligible assets include US currency, Federal Reserve balances, withdrawable bank deposits, and Treasuries with an original or remaining maturity of 93 days or less.
The stability of this system is evident in the case of Circle, a large issuer that uses a cash-like mix for its reserves. Its second-quarter filing showed $USDC circulation at $73.269 billion on June 30, with $60.717 billion sitting in the Circle Reserve Fund, including $52.723 billion of overnight Treasury repo and $7.179 billion of Treasuries.
The stablecoin demand can reinforce short-term debt financing but does not directly address the long-duration bond problem. The Treasury Department has decided to at least double the maximum size of liquidity-support buybacks in the 10- to 20-year and 20- to 30-year nominal sectors beginning September 9.