Stablecoins Fill Gap Left by Foreign Investors' Reduced Appetite for Treasury Bills

Foreign investors dumped $29 billion in Treasury bills in June, but paradoxically, this has led Washington to pivot towards stablecoin issuers as a potential backer for US debt. According to data from the Treasury International Capital report (TIC), foreign buyers purchased only $6.8 billion of long-term Treasuries and sold $29 billion of short-term Treasury bills in June.

The total amount invested by foreign investors in US securities and banking assets was a net $133.5 billion, with most of the incoming money going into US stocks ($181.4 billion) rather than cash-like debt. This has created a gap that stablecoin issuers like Tether and Circle are now filling.

Tether's second-quarter attestation listed $114.96 billion in direct Treasury bills, which is roughly equivalent to one-quarter of the foreign bill sale. Meanwhile, Circle uses a similar reserve model for its USDC token, with most backing sitting in the Circle Reserve Fund, a government money-market fund managed by BlackRock.

The connection between stablecoins and Treasury demand is straightforward: when users redeem stablecoins, issuers need cash and may sell bills or allow them to mature. This creates fresh Treasury demand that can potentially fill the gap left by foreign investors' reduced appetite for short-term debt.