Stablecoins Favor Treasury Bills Over Long-Duration Bonds

The growth of stablecoins in the US government debt market is having a significant impact on the demand for Treasury bills, but not necessarily for long-duration bonds. According to recent developments, the federal framework for permitted payment stablecoins channels reserves into cash-like instruments and Treasuries with no more than 93 days remaining.

The GENIUS Act requires issuers to maintain identifiable reserves of at least one dollar for every payment stablecoin outstanding, including US currency, Federal Reserve balances, and eligible Treasury securities. However, long-duration bonds such as the newly issued 10-year note or 30-year bond fall outside this direct channel.

Implementation of the GENIUS Act is still in progress, with a general effective date set for January 18, 2027, or 120 days after final implementing rules. The Office of the Comptroller of the Currency (OCC) has issued its framework as a proposal in February and expects to finalize the rule by November.

Circle's reserves provide an example of short-duration reserve behavior, with $60.717 billion held in the Circle Reserve Fund, including $52.723 billion of overnight Treasury repo and $7.179 billion of Treasuries. This suggests that stablecoin market growth and fresh federal financing are different quantities.