Blofin Research: The Surging U.s. Treasury Yield: Can Stablecoins Help?

What Happened

The Fed controls the short end directly through the policy rate; the long end is set by the market, by investors’ collective judgment on inflation, growth, and fiscal sustainability, and the Fed has no direct instrument to suppress it without reviving large-scale asset purchases.

The question it raises: does the U.S. have the instruments to bring the long end down?

Short-term rates are heavily influenced by the Fed. Treasury bills can also get support from stablecoin companies. But the 10-year and 30-year Treasury markets are different. They require large investors willing to lend money to the U.S. government for a long time.

Oil and gasoline affect inflation quickly. When oil prices fall, inflation often looks less threatening. That can make investors more comfortable owning long-term bonds. This matters for Treasury yields because investors demand higher yields when they are worried inflation will stay high.

Market Context

Stablecoins create a bid for short-duration Treasuries but cannot absorb 10Y or 30Y duration risk, reserve liquidity requirements preclude holding assets with meaningful interest-rate sensitivity.

The 30-year U.S. Treasury yield had pushed to 5.12% and the 10-year to 4.60%, both reaching multi-year highs. Concurrent sell-offs hit UK gilts, Japanese government bonds, and German Bunds. The pressure is not confined to bond markets: with the 30-year above 5%, a near risk-free 5% return makes the opportunity cost of holding non-yielding assets explicit, gold fell to a one-month low near $4,500 and bitcoin dropped below $80,000 on the same session the 10-year broke 4.55%.

The repricing also reflects three reinforcing inputs beyond the immediate demand shortfall. Energy-driven inflation is keeping the Fed’s reaction function constrained and supporting a “higher for longer” rate pricing regime. Persistent fiscal deficits require heavy bond issuance at whatever yield the market will accept. Deglobalization is structurally re-embedding an inflation premium into long yields: the disinflationary tailwind from three decades of global supply-chain integration has partly reversed, pushing term premiums that were compressed near zero throughout 2010–2021 back to material levels.

Total dollar-stablecoin supply has reached $323 billion as of May 2026, with USDT at $190 billion and USDC at $78 billion together controlling roughly 83% of the market. Tether’s Q1 2026 attestation shows approximately $117 billion in U.S. Treasury bills, its single largest reserve allocation, while USDC maintains a comparable T-bill-heavy structure. The GENIUS Act, now enacted and with implementation rules due July 2026, hard-codes this preference by restricting payment stablecoin reserves to cash, repo, or Treasuries with maturities of 93 days or less.

Stablecoin issuers are functionally equivalent to money market funds with global distribution: they export dollar demand to offshore holders and create a persistent bid for short-duration Treasuries. With the ever expanding stablecoin supply, that could generate hundreds of billions in incremental front-end demand, reducing rollover pressure on bills and freeing the Treasury to extend average maturity at lower short-end rates.

Bringing down energy price

The current energy price elevation is primarily a Middle East conflict issue. Lower energy prices require de-escalation, and de-escalation is a political outcome, not an economic one.

Why It Matters

The Treasury’s shift toward T-bill financing reduces long-end supply pressure but compounds front-end rollover risk, stablecoin demand directly absorbs that risk, making the two mechanisms mutually reinforcing at the short end of the curve.

That relief has limits. Stablecoin reserve demand is concentrated in bills and overnight collateral, while the long end is driven by expected policy rates, inflation expectations, fiscal credibility, foreign reserve allocation, hedging costs, and the term premium. Stablecoins can ease front-end funding pressure, but compressing long-end yields requires instruments that directly affect duration demand and term-premium risk.

Details

Stablecoin growth creates a durable, expanding bid for short-duration Treasuries, reinforcing the U.S. Treasury’s deliberate shift toward T-bill financing. Redemption requirements confine stablecoins to the short end, the long-end demand gap remains dependent on the return of foreign institutional buyers.

The long-end problem remains unsolved by either mechanism. Compressing 10Y and 30Y yields requires bringing foreign duration buyers back.

The long-end problem

Foreign holders, representing approximately 30% of outstanding U.S. Treasury ownership, are reducing exposure. China, now the third-largest foreign holder at $693 billion, down from a peak of $1.3 trillion in 2013, has been reallocating reserves toward gold.

Japan, the largest U.S. Treasuries foreign holder at $1.14 trillion, faces a compounding repatriation incentive: Bank of Japan rate normalization is raising domestic JGB yields toward multi-decade highs. As domestic alternatives improve on both a hedged and unhedged basis, several of Japan’s largest life insurers explicitly cut foreign bond exposure in 2025.

Stablecoins provide a front-end solution

Stablecoins have entered the policy conversation as a support mechanism for Treasury demand. The logic is directionally correct but confined to one segment of the curve.

The architecture to compress long-term yields

Long-term Treasury yields are hard to bring down because they depend on more than Federal Reserve rate cuts.

To push those long-term yields lower, several things need to happen.

If the conflict cannot be solved in the short term, the burden shifts entirely to the remaining mechanisms discussed below.