Foreign investors dump $29B in U.S. T-bills as stablecoins emerge as a potential backstop

Foreign investors posted a net $133.5 billion inflow into U.S. financial markets in June, but the headline masks a sharp split in positioning: buyers piled into equities while cutting exposure to cash-like government debt. Data show overseas investors bought $181.4 billion of U.S. stocks and just $6.8 billion of long-term Treasuries, while selling $29 billion of short-term Treasury bills. The divergence matters because Treasury bills are widely used as a liquidity parking place. Foreign institutional holdings of U.S. T-bills fell to about $1.40 trillion in June from roughly $1.43 trillion in May, a decline of around 2% from May's level. The June reduction followed $43.5 billion of selling in May, bringing two-month selling to about $72.5 billion. The figures come from the U.S. Treasury Department's monthly International Capital (TIC) report, which tracks securities flows and short-term bank flows. The $181.4 billion in equity purchases exceeded the $133.5 billion net inflow because other channels offset part of the buying, including Treasury sales, $34.4 billion of outflows recorded under bank balance sheets, and U.S. residents' purchases of foreign securities. The available data do not identify the motivations behind the T-bill selling, which could reflect routine cash management or reallocation. The same split in flows helps explain why stablecoins have entered the conversation around U.S. debt demand. Payment-oriented stablecoin issuers such as Tether and Circle typically invest most reserve assets backing their tokens in highly liquid instruments, including short-term Treasuries and related markets. The mechanics are straightforward: when a user pays $1 to mint a dollar stablecoin, the issuer incurs a redemption obligation and seeks reserves that can be converted to cash quickly. Treasury bills fit that profile, turning demand for "digital dollars" into indirect demand for U.S. government debt without users needing brokerage access. U.S. policy has begun to formalize this model. The GENIUS Act established an operating framework requiring regulated payment stablecoins to hold highly liquid reserves. A U.S. Treasury Department proposed rule issued on August 17 further detailed the federal approach, identifying cash, short-term U.S. Treasuries and related repurchase agreements as preferred reserve assets. Issuer disclosures illustrate the sector's scale. Tether's second-quarter attestation reported $114.96 billion in direct Treasury bill holdings, plus $25.62 billion in overnight and term repurchase agreements. By comparison, June's $29 billion foreign T-bill selling was roughly one-quarter of Tether's direct bill position. The comparison is only a sizing reference: TIC data do not show that bonds sold by overseas institutions were purchased by Tether or other stablecoin issuers. Circle's USDC uses a similar approach. Reserve disclosures indicate most USDC reserves sit in the Circle Reserve Fund, managed by BlackRock, a government money market fund that can hold cash, short-term Treasury bills and overnight U.S. Treasury repos. Despite differences in structure, both models route stablecoin demand toward U.S. cash-equivalent assets. Still, June's data do not support a simple claim that stablecoin issuance absorbed the $29 billion selloff. New Treasury buying via stablecoins occurs primarily when the circulating supply expands or when issuers rebalance reserves by swapping other assets. At the end of Q2, USDT supply stood at $184.6 billion, up only about $446 million from the end of Q1. DefiLlama data show total stablecoin market capitalization at about $302.1 billion as of August 21, down 0.14% over the past 30 days. Public data also provide no evidence that foreign holders sold directly to stablecoin issuers. The mechanism can also work in reverse. Large-scale redemptions can force issuers to raise cash by selling Treasuries or relying on maturities. Stablecoins may become meaningful buyers of U.S. bills, but their demand is cyclical and can swing with issuance and redemption. The next TIC report is due on September 16 and will cover July. Two indicators to watch are foreign institutional holdings of short-term U.S. Treasuries and total stablecoin circulation. A third straight monthly decline in foreign holdings alongside flat stablecoin supply would imply the demand gap persists. Rising stablecoin supply accompanied by increases in issuers' disclosed Treasury holdings would signal that this new buyer base is stepping up. Because TIC assets are recorded through custodians, aligning the datasets precisely remains difficult. In June, foreign investors kept allocating to U.S. assets, led by strong equity buying, while reducing short-term government debt holdings. Stablecoin issuers already hold tens of billions of dollars in U.S. Treasuries and have become a market participant that is hard to ignore, even though Tether's Q2 growth alone cannot explain the month's large T-bill selloff. With overseas demand for short-term Treasuries weakening, U.S. regulators are building a framework for a new class of potential buyers, tying the "digital dollar" more directly to U.S. government financing.