Former Treasury Secretary Henry Paulson has called on U.S. officials to develop a contingency plan in case demand for Treasury securities collapses, cautioning that the consequences could be “vicious.”
“We need an emergency ‘break-the-glass’ plan—targeted and short-term—ready on the shelf so it can be deployed when we hit the wall,” Paulson said in an interview with Bloomberg on Thursday.
“People say, when are you going to hit the wall? I obviously don’t know, it’s impossible to know. When we hit it, it will be vicious, so we have to prepare for that eventuality.”
The U.S. Treasury market underpins the global financial system, serving as the “risk-free” benchmark against which assets such as corporate bonds, mortgages, and equities are priced. Any instability could send shockwaves through the world economy.
For years, economists have warned of a potential “doom loop,” in which investors demand higher yields on Treasurys amid concerns over the government’s swelling debt—now exceeding $39 trillion.
Rising yields would push up interest costs—currently around 4.3% on 10-year notes—further widening the deficit. If the Treasury struggles to raise sufficient funds to meet those payments, many expect the Federal Reserve to step in as the primary buyer, Bloomberg reported.
A double-edged sword for crypto
A breakdown in the $31 trillion U.S. Treasury market could have mixed effects on crypto markets.
On one hand, it might drive investors toward alternative stores of value like Bitcoin or gold—especially if the Federal Reserve is forced to monetize debt, fueling inflation concerns and weakening confidence in the dollar.
On the other hand, the largest stablecoin issuer, Tether, holds the bulk of its reserves in Treasurys, with about 63% in U.S. Treasury bills and another 10% in overnight reverse repurchase agreements, according to its transparency report.
Andri Fauzan Adziima, research lead at the Bitrue trading platform, told Cointelegraph that this scenario remains a “watch-list macro tail risk.” However, if it unfolds, it could bring short-term pain through “spiking yields, tighter global liquidity, and risk-off selling,” hitting Bitcoin and altcoins hard while also increasing risks for stablecoins.
“Tether alone holds over $120 billion in Treasurys, making it vulnerable to redemption runs or depegs if confidence erodes and it faces fire-sale pressure.”
Over the longer term, such a crisis could “accelerate a shift toward non-sovereign stores of value, positioning Bitcoin as ‘digital gold’ amid declining confidence in U.S. debt and dollar dominance.”
He added that the scenario could ultimately be bullish—provided it exposes vulnerabilities in fiat systems without triggering an immediate systemic collapse.
U.S. Treasury carries out largest debt buyback
On Thursday, the U.S. Treasury executed its largest-ever single debt buyback, purchasing $15 billion in older securities set to mature between 2026 and 2028.
These buybacks help improve market liquidity by retiring less actively traded bonds and injecting cash into investors’ hands, which can then be redeployed across the broader financial system.
