Circle refuses to hold longer-dated Treasurys on concern US government might default

Quick Take

  • Circle is refusing to hold Treasurys that mature beyond early June amid concern the U.S. may default on its debts, CEO Jeremy Allaire told Politico. 

Circle, the issuer of the USDC stablecoin, is refusing to hold Treasurys that mature beyond early June amid concerns U.S. politicians will fail to agree to raise the debt ceiling, risking a default on U.S. government debt, CEO Jeremy Allaire told Politico in an interview. 

“We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts,” Allaire said in the interview. Disclosures from the Circle Reserve Fund, which is managed by BlackRock, show it holds no U.S. government debt maturing beyond May 31. 

Democrats and Republicans in Congress are locked in a dispute about raising the government's $31 trillion borrowing limit, with the Treasury implementing special measures to meet its obligations. These accounting tools — which include things like pausing contributions to government workers’ retirement funds — are currently forecast to tide the U.S. over until June, the so-called X-date after which the government may have to resort to missing payments on its bonds. 

While the U.S. has never defaulted on its a debt and a last-minute deal to salvage the situation is considered likely, Circle isn't alone in shunning Treasurys that mature after the X-date. The yield on the Treasury bill maturing May 23 has declined to about 4.2% while the yield for the bill maturing June 13 has risen to nearly 5.5%, according to data from Bloomberg. The two notes yielded roughly the same at the end of March. 

Circle stablecoin supply

Circle's USDC is the second-largest stablecoin, after tether, with about $29 billion worth in circulation, according to data compiled by The Block.  

In a statement accompanying its quarterly results yesterday, Tether said about 85% or its reserves are held in cash, cash equivalents and other short-term deposits.

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