Former Treasury Secretary Henry Paulson has issued a stark warning to US authorities regarding the potential collapse in demand for US Treasurys. In an interview with Bloomberg, Paulson emphasized the need for a contingency plan, stating, “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.” He acknowledged the unpredictability of when such a crisis might occur but cautioned that the fallout would be “vicious.”
The US Treasury market serves as the foundation of the global financial system, acting as a “risk-free” benchmark for pricing other assets, including corporate bonds, mortgages, and stocks. Any instability in this market could lead to significant ripple effects throughout the global economy. Economists have long warned of a potential “doom loop,” where rising investor demands for higher yields on Treasurys, driven by the government’s escalating debts—currently exceeding $39 trillion—could lead to increased interest payments. Presently, the interest rate on 10-year notes stands at 4.3%. If the Treasury struggles to raise the necessary funds to cover these payments, speculation suggests that the Federal Reserve may step in as the principal buyer.
The implications of a Treasury market crisis could extend to the cryptocurrency markets. A meltdown in the $31 trillion US Treasury market could prompt investors to seek alternative stores of value, such as Bitcoin or gold. This scenario could unfold if the Federal Reserve is compelled to monetize debt, which would likely stoke inflation fears and diminish confidence in the dollar.
However, it is important to note that Tether, the world’s largest stablecoin issuer, is heavily backed by Treasurys, with 63% of its total reserves consisting of US Treasury bills. This reliance makes Tether vulnerable to potential redemption runs or depegging if market confidence falters. Experts warn that a Treasury crisis could lead to short-term challenges for cryptocurrencies, including rising yields and tighter global liquidity, which may negatively impact Bitcoin and altcoins while amplifying risks associated with stablecoins.
Despite these risks, some analysts believe that a crisis could ultimately accelerate a shift toward non-sovereign stores of value, potentially positioning Bitcoin as “digital gold” amidst growing distrust in US debt and dollar dominance.
In a related development, the US Treasury conducted its largest single debt buyback, accepting $15 billion worth of older securities maturing from 2026 to 2028. Such buybacks are designed to enhance liquidity in the Treasury market by retiring less-traded bonds and providing cash to holders, allowing them to redeploy funds elsewhere in the financial system.
