US Treasury Strain Raises Risks for Bitcoin, Stablecoins

The US Treasury market is under pressure after marketable debt exceeded $30.2 trillion and nearly $3 trillion of outstanding securities matured in 2025, all requiring new buyers. At the same time, leveraged funds held more than $1 trillion in notional short Treasury futures and the stablecoin issuer Tether reported $141 billion in Treasury holdings.

Treasury debt has more than doubled since 2018. In fiscal 2025 the federal government ran a $1.8 trillion deficit and paid over $1 trillion in interest on publicly held debt. Foreign central banks reduced their Treasury holdings and the Federal Reserve began shrinking its balance sheet after it peaked around $8.5 trillion in 2022, removing a major source of demand and liquidity.

The 2025 refinancing schedule raised pressure on market functioning. Nearly $3 trillion of outstanding Treasury securities matured that year. At several auctions in early 2026 primary dealers absorbed larger-than-normal amounts of newly issued notes; in a two-year note sale in late March dealers took roughly twice their typical share, which market participants viewed as evidence that the marginal buyer base had thinned.

Hedge funds have grown central to the cash-futures basis trade, an arbitrage strategy funded largely by overnight repo borrowing. By March 2025 leveraged funds’ notional short positions in Treasury futures exceeded $1 trillion, and some large funds reported leverage ratios above 18:1. In November 2025 Federal Reserve Governor Lisa Cook warned that “positions at this scale make the Treasury market considerably more susceptible to stress.”

Earlier liquidity episodes highlighted these vulnerabilities. A repo market freeze in September 2019 required emergency Fed liquidity injections. Market turmoil in March 2020 prompted large Fed purchases after institutional investors sold Treasuries while seeking cash. In April 2025 a tariff announcement coincided with a sharp deterioration in Treasury liquidity and prompted speculation about Fed action before conditions stabilized. Several emergency facilities and programs have been used repeatedly since those events.

The mix of buyers has shifted toward private and non-sovereign actors in recent years. Tether’s Treasury holdings reached $141 billion in 2025, making the issuer one of the largest non-sovereign holders of US government debt. That demand has supported the short end of the yield curve. Market observers note that Bitcoin’s price in 2026 has been sensitive to Treasury yield movements, with higher long-term yields limiting gains even as the Federal Reserve cut its policy rate.

The 10-year Treasury yield remained near 4.3% through much of 2025 and into 2026 and rose above 4.5% at times, keeping 30-year mortgage rates above 6% despite three Fed cuts to the benchmark rate. The Congressional Budget Office projects net interest payments rising from roughly $1 trillion annually in 2026 to about $2.1 trillion by 2036, with an alternate scenario in which persistently higher yields lift that figure toward $2.2 trillion.

Officials and market participants are monitoring auction demand, the size and leverage of basis trades, the composition of Treasury holders, and signs of stress in short-term funding markets and stablecoins for indications of strain. Treasury market functioning at present relies on a combination of central bank programs, leveraged private capital and a broader set of marginal buyers than in prior decades.