Stablecoins Fail to Fix US Treasury's $28B Long-Bond Problem

The US Treasury Department has been relying on stablecoins to fund short-term debt, but this doesn't address its $28B long-bond problem.

A recent development in the federal framework for permitted payment stablecoins allows reserves to be channeled into cash-like instruments and Treasuries with no more than 93 days remaining. This is a result of the GENIUS Act, which requires issuers to maintain identifiable reserves of at least one dollar for every payment stablecoin outstanding.

The reserve mandate focuses on short-duration assets, such as U.S. currency, Federal Reserve balances, and Treasuries with an original or remaining maturity of 93 days or less. This means that long-duration bonds, like the 10-year note or 30-year bond, are not directly supported by stablecoin reserves.

The Treasury Department has announced plans to expand its long-end buybacks, targeting off-the-run nominal coupons in the 10- to 20-year and 20- to 30-year sectors. This move aims to provide liquidity support for dealers and investors who may struggle with older securities that trade less readily than newer issues.