Circle Refuses to Hold Long-dated Treasury Bonds

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Last Updated on May 11, 2023 by Bitfinsider

Circle, the issuer of the USDC stablecoin, is refusing to hold Treasurys with maturities beyond early June out of concern that U.S. legislators will fail to agree to raise the debt ceiling, risking a default on U.S. government debt, according to CEO Jeremy Allaire in an interview with Politico.

“We do not wish to be exposed to a potential breach in the U.S. government’s ability to pay its debts,” Allaire said in an interview. The Circle Reserve Fund, managed by BlackRock, has no U.S. government debt maturing after May 31, according to its disclosures.

Congressional Democrats and Republicans are at odds over whether or not to increase the government’s $31 trillion borrowing limit, with the Treasury implementing special measures to meet its obligations. These accounting tools, which include suspending contributions to government employees’ retirement funds, are expected to tide the nation over until June, the so-called X-date after which the government may be forced to default on bond payments.

Even though the United States has never defaulted on its debt and a last-minute deal to salvage the situation is plausible, Circle is not alone in avoiding Treasurys with maturities after X. According to Bloomberg data, the yield on the Treasury bill maturing on May 23 has decreased to about 4.2% while the yield on the bill maturing on June 13 has increased to nearly 5.5%. At the end of March, the two notes yielded roughly the same amount.

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