In 2012, foreign central banks and sovereign wealth funds owned roughly half of all outstanding US Treasury debt. By 2023, that figure had fallen below 30%. That is a gap of trillions of dollars.
Someone has to buy that debt, or the world’s most important bond market starts to break. The old story is simple.
For decades, China, Japan, and oil-exporting nations piled up dollar reserves and parked them in US government bonds. It was stable. It was predictable.
Those buyers are now retreating. Some are diversifying into gold.
Others are spending reserves to defend their currencies. A few are simply selling Treasurys for geopolitical reasons. That leaves a hole.
The US government still needs to borrow. The Treasury market still needs buyers. Higher yields — meaning higher borrowing costs for the US government, for corporations, for homeowners — are the default solution.
Higher yields attract reluctant investors. That is how markets traditionally clear.
But something else is happening. Quietly, a new class of buyer has emerged. United Overseas Bank, one of Singapore’s largest banks, has been tracking this shift.
The bank argues that the private sector is already stepping into the gap left by foreign official holders. The buyers are not what you would expect.
Money market funds have long been major purchasers of short-term government paper. That is not new. What is new is the second group: stablecoin issuers.
Stablecoin issuers need safe, liquid assets to back every token they put into circulation. Dollar-denominated stablecoins must be redeemable one-for-one with US dollars. To guarantee that, issuers hold reserves.
The safest reserve asset in the world is a US Treasury bill. Short-duration, high-quality, liquid.
It fits perfectly. The numbers are not in the public report, but the logic is straightforward. Every stablecoin in circulation represents a dollar of demand for some kind of collateral.
As the market for stablecoins grows, so does the demand for T-bills. Tokenized Treasury products add another layer.
These are digital wrappers around government debt that can trade more efficiently than the underlying bonds. They create another channel for private sector demand. The implications go beyond the bond market.
If private sector demand can replace what foreign official buyers have withdrawn, the Treasury market may stabilize without requiring significantly higher yields. That matters for everything from mortgage rates to corporate borrowing costs to the US government’s own interest bill. UOB is not predicting a revolution.
The bank is describing a shift already underway. Money market funds and stablecoin issuers both need mountains of short-duration, high-quality collateral.
Both are buying Treasury bills in size. The question is whether this private sector demand is durable. Foreign official holders were reliable for decades.
They bought and held. They did not panic-sell.
Stablecoin issuers are different. They are private entities. They are regulated — or not, depending on the jurisdiction.
Their demand for Treasurys is contingent on the demand for their tokens. If stablecoin markets shrink, Treasury demand could shrink with them. But for now, the trend is clear.
The world’s most important bond market is losing its biggest customers. The private sector is already filling the gap.
UOB thinks that is a good thing. The market seems to agree.
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