Foreign investors sent a net $133.5 billion into US financial markets in June, according to Treasury International Capital (TIC) data. However, that influx highlighted a sharp division between strong demand for equities and a decline in government debt holdings.
During June, foreign buyers purchased $181.4 billion of US equities and $6.8 billion in long-term Treasuries, but sold $29 billion in short-term Treasury bills. This followed a $43.5 billion reduction in May, bringing the two-month total of foreign bill sales to approximately $72.5 billion. Foreign holdings of short-term Treasuries fell from about $1.430 trillion in May to $1.400 trillion in June.
The Stablecoin Connection to US Debt
This drop in foreign appetite for short-term government debt coincides with Washington's growing focus on stablecoin issuers. Major issuers such as Tether and Circle keep a substantial portion of their token backing in Treasury bills and closely related assets. When a customer purchases a dollar stablecoin, the issuer places the reserve funds into highly liquid instruments like Treasury bills, turning digital token demand into indirect demand for US government obligations.
Regulatory frameworks have begun to formalize this relationship. The GENIUS Act requires regulated payment stablecoins to hold liquid reserves, and a Treasury proposed rule gives favored treatment to cash, short-term Treasury obligations, and related repurchase agreements.
The scale of these issuers is substantial. Tether's second-quarter attestation reported $114.96 billion in direct Treasury bills alongside $25.62 billion in repo positions, meaning June's single-month foreign bill sale equaled roughly a quarter of Tether's direct bill portfolio. Similarly, Circle utilizes reserves largely held in government money-market funds that invest in short-dated Treasuries and overnight repo.
Evaluating Market Scale and Impact
While the mechanism channels foreign capital into government debt when users hold dollar stablecoins abroad, recent data shows that new token creation was too small to directly absorb June's $29 billion sale. Tether reported $184.6 billion of USDT in circulation at the end of the second quarter, representing an increase of only about $446 million from the first quarter, while the broader stablecoin market hovered near $302.1 billion in late August.
Analysts note that while stablecoins cannot be directly tied to offsetting June's specific foreign sales, their massive existing holdings of short-term government paper firmly place them in the Treasury-demand conversation as Washington builds out federal rules for the sector.
