Former Treasury Secretary Henry Paulson urged US authorities to prepare a contingency plan for a potential collapse in demand for US Treasurys, warning the fallout would be “vicious.”
“We need an emergency break-the-glass plan, which is targeted and short-term, on the shelf, so it’s ready to go when we hit the wall,” Paulson told Bloomberg in an interview. “People say, when are you going to hit the wall? I obviously don’t know, it’s impossible to know. When we hit it, it will be vicious, so we have to prepare for that eventuality.”
The US Treasury market is the bedrock of the global financial system, serving as the “risk-free” benchmark used to price corporate bonds, mortgages and stocks. Instability there could ripple through the global economy. Economists have warned of a potential “doom loop” in which investors demand higher yields on Treasurys amid concerns about the government’s growing debt—currently more than $39 trillion. Higher yields, such as the current roughly 4.3% on 10-year notes, would raise interest costs and widen the deficit. If the Treasury cannot raise needed funds, many assume the Federal Reserve would become the principal buyer.
A shock to the $31 trillion US Treasury market could have mixed effects on crypto. One scenario is a flight to alternative stores of value like Bitcoin or gold if the Fed is forced to monetize debt, stoking inflation fears and undermining confidence in the dollar. Conversely, large stablecoin issuers are heavily exposed to Treasurys: Tether’s transparency report shows roughly 63% of its reserves in US Treasury bills and about 10% in overnight reverse repurchase agreements. Research lead at trading platform Bitrue, Andri Fauzan Adziima, called this a “watch-list macro tail risk,” saying a collapse could cause “spiking yields, tighter global liquidity, and risk-off selling that hits BTC and altcoins hard while amplifying stablecoin risks.”
“Tether alone holds over $120 billion in Treasurys, making it vulnerable to redemption runs or depegs if confidence erodes and it faces fire-sale pressure,” he said. Over a longer horizon, however, such a crisis might accelerate a flight to non-sovereign stores of value, positioning Bitcoin as “digital gold” if confidence in US debt and dollar dominance erodes—potentially bullish for crypto if it occurs without an immediate systemic collapse.
Separately, the US Treasury carried out its largest single debt buyback, accepting $15 billion of older securities maturing from 2026 to 2028. Buybacks can boost market liquidity by retiring less-traded bonds and returning cash to holders, who may redeploy it elsewhere in the financial system.
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