SINGAPORE — The world’s most important bond market is quietly losing its biggest customers, and one of Singapore’s largest banks thinks the private sector is already filling the gap. United Overseas Bank has been making the case that regulated stablecoins and tokenized Treasury products are creating a new, reliable class of buyers for short-term US government debt. Foreign governments used to hold roughly half of all outstanding US Treasury debt.
That share has dropped to under 30%. Into that gap have stepped two groups: money market funds and stablecoin issuers.
Both need mountains of short-duration, high-quality collateral. Both have been buying Treasury bills in size. The numbers tell the story.
Foreign official holders — central banks and sovereign wealth funds — held approximately 50% of total outstanding US Treasury debt back in 2012. By 2023, that figure had slipped below 30%.
UOB, one of Singapore’s largest banks, argues the private sector is already stepping in. Stablecoin issuers need safe, liquid assets to back their tokens, and Treasury bills fit the bill perfectly. Tokenized Treasury products, meanwhile, offer a digital wrapper around government debt that can trade more efficiently than the underlying bonds.
A quiet shift in Treasury demand is underway. Money market funds have long been major buyers of short-term government paper. The addition of stablecoin issuers — entities that must hold high-quality collateral against every token in circulation — represents a new and potentially durable source of demand.
The implications are notable. If private sector demand can replace some of what foreign official buyers have withdrawn, it may stabilise the Treasury market without requiring higher yields to attract reluctant investors.
That matters for everything from mortgage rates to corporate borrowing costs. For all the scepticism directed at crypto markets, UOB’s analysis suggests the stablecoin and tokenization crowd may be doing something the traditional financial system struggles with: creating a reliable, growing pool of buyers for short-term US government debt. The question now is whether this private sector demand proves as sticky as the central banks it is replacing.
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