Stablecoin Growth Fuels Demand for Short-Term T-Bills

Recent U.S. Treasury meeting minutes highlight a growing interest in digital assets and their potential impact on the financial market, driven by the increasing adoption of stablecoins.

The meeting minutes indicate a rising demand for Treasury bills (T-bills) due to the expanding use of stablecoins. On October 29, Treasury officials, including Under Secretary Nellie Liang, discussed potential tokenization of Treasury assets on a blockchain.

Treasury receipts surged to $4.92 trillion in fiscal year 2024, largely from increased non-withheld and corporate taxes, while outlays reached $6.75 trillion due to rising public debt interest payments.

Projected borrowing needs through 2026 are expected to be about $128 billion higher than previous estimates, with nominal coupon issuance anticipated to remain stable despite potential challenges from the 2025 debt limit suspension.

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The meeting also covered TIPS demand, indicating room for additional securities in the market. Recent buyback efforts received positive feedback for stabilizing Treasury liquidity.

Concerns were raised about decreasing T-bill demand and the growing influence of principal trading firms, alongside discussions on enhancing market stability. The role of stablecoins in the Treasury market was examined, with officials considering tokenization benefits and risks. The Committee recommended keeping nominal coupon auction sizes unchanged while gradually increasing TIPS auction sizes.

Alexander Zdravkov