Former Treasury Secretary Henry Paulson warned U.S. authorities to have a short-term, targeted contingency plan in place in case demand for U.S. Treasurys collapses, saying the consequences would be severe. He told Bloomberg an “emergency break-the-glass plan” should be ready to deploy because when a crisis hits, it could be “vicious.”
The U.S. Treasury market—widely regarded as the global “risk-free” benchmark—underpins pricing across corporate bonds, mortgages and equities. Economists have cautioned about a possible feedback loop in which concerns over rising federal debt (now above $39 trillion) push investors to demand higher yields on Treasurys. Higher yields—the 10-year note is roughly 4.3% today—would increase interest costs and widen the deficit, potentially forcing the Treasury to rely on the Federal Reserve as a major buyer.
A shock to the roughly $31 trillion Treasury market could ripple through other asset classes, including cryptocurrencies. One possible outcome is a flight to alternative stores of value such as Bitcoin or gold if the Fed effectively monetizes debt, stoking inflation fears and weakening confidence in the dollar. Conversely, large stablecoin issuers are significantly exposed to Treasurys: Tether’s transparency report shows about 63% of its reserves in U.S. Treasury bills and roughly 10% in overnight reverse repurchase agreements. Andri Fauzan Adziima, research lead at trading platform Bitrue, described the situation as a “watch-list macro tail risk,” warning that a collapse could trigger spiking yields, tighter global liquidity and broad risk-off selling that harms BTC and altcoins while magnifying stablecoin vulnerabilities.
Tether alone holds more than $120 billion in Treasurys, a position that could leave it susceptible to redemption runs or depegs if market confidence deteriorates and holders face fire-sale pressure. Over a longer horizon, a loss of confidence in U.S. debt or dollar dominance could accelerate interest in non-sovereign stores of value, potentially boosting Bitcoin’s appeal as “digital gold”—provided the disruption does not immediately trigger a systemic collapse.
In a separate move, the U.S. Treasury executed its largest single debt buyback, accepting $15 billion of older securities maturing from 2026 to 2028. Buybacks can improve market liquidity by retiring less-traded bonds and returning cash to holders, who may then redeploy it elsewhere in financial markets.
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