Article by: Andjela Radmilac
Compiled by Saoirse, Foresight News
In June, foreign investors net injected $133.5 billion into U.S. financial markets but sold off $29 billion in short-term Treasury securities during the same period.
Two sets of data reveal sharply contrasting capital flows within the same month: the majority of inflows flowed into U.S. stock markets, while demand for U.S. government debt weakened significantly. Foreign buyers purchased $181.4 billion in U.S. stocks but only $6.8 billion in long-term Treasuries; on the short-term end, they reduced their holdings of short-term Treasury bills, often used as a cash reservoir.
This capital divergence also explains why stablecoins have been incorporated into the U.S. government’s debt management strategy. Stablecoin issuers such as Tether and Circle allocate the majority of their reserve assets backing the tokens’ value to short-term Treasury securities and similar instruments. If foreign buyers continue to reduce their Treasury holdings, the rapidly growing stablecoin sector could emerge as another substantial demand force, potentially rivaling foreign capital. June data shows the industry has already reached sufficient scale, but recent token issuance volumes have been minimal and insufficient to account for this $29 billion sell-off.
Foreign investors prefer equities over cash-like debt.
The U.S. Department of the Treasury's International Capital Report, commonly known as the TIC report, is a monthly record of capital flows between the United States and the rest of the world. The report tracks both securities transactions and short-term bank flows, causing the headline totals to often obscure fundamentally different underlying investment decisions.
Summary of Overseas Investors' Fund Behavior in June:
The $181.4 billion figure for equity investments exceeds the overall net inflow of $133.5 billion because the total data reflects offsetting inflows and outflows. Sales of Treasury securities and $34.4 billion in outflows under bank balance sheets offset part of the funds used to purchase equities; meanwhile, U.S. residents also exported capital abroad by purchasing foreign securities.
Although the statistical logic is complex, the core message is clear: foreign investors continue to allocate funds to U.S. assets, particularly favoring U.S. corporate equities; however, their willingness to invest in government debt remains low, and they are withdrawing funds from short-term debt instruments.
Treasury bills are debt instruments issued by the U.S. government with maturities of one year or less. Due to their rapid principal repayment and high market liquidity, Treasury bills are often regarded as a close substitute for cash, and are widely held by central banks, corporations, money market funds, and stablecoin issuers.
Foreign institutional holdings of U.S. short-term Treasuries declined from approximately $1.43 trillion in May to $1.40 trillion in June, representing a reduction of about 2% of May’s holdings. This marks the second consecutive month of selling: foreign investors sold $43.5 billion in May and $29 billion in June, totaling approximately $72.5 billion in combined减持 over the two months.
The available data cannot directly determine the motivations behind investor selling; it could be routine cash management or a reallocation of assets to other categories. Overall data shows that foreign capital is adopting a differentiated allocation toward the U.S. market: buying equities while reducing Treasury holdings, yet net capital continues to flow into the United States. When interpreting the Treasury’s country-specific data tables, caution is required, as securities assets are recorded through custodial institutions, which can obscure the actual nationality of the asset holders.
How stablecoins convert USD into Treasury bill demand
A simple transaction illustrates the connection between stablecoins and Treasury bills: a user pays $1 to the issuer and receives 1 USD-stablecoin in return. The issuer assumes the obligation to redeem the stablecoin for $1, so it invests its reserves in assets that can be quickly liquidated. Short-term Treasury bills are well-suited to this need, as few other assets on the market can be converted into cash as efficiently and rapidly as Treasury bills.
Once the issuer purchases Treasury securities, users' demand for digital dollars indirectly becomes demand for U.S. government debt. Users do not need a securities account or direct access to the Treasury’s investment platform; the stablecoin company handles all reserve asset investments in the background.
The GENIUS Act formally established this operational model, requiring regulated payment-oriented stablecoins to hold highly liquid reserves. The proposed rule issued by the U.S. Department of the Treasury on August 17 further refined the federal regulatory framework, designating cash, short-term U.S. Treasuries, and related repurchase agreements as preferred reserve assets.
CryptoSlate previously analyzed that the bill establishes a federal regulatory pathway for dollar-denominated tokens, while leaving the design of reserve assets and admission criteria to regulatory authorities.
The scale of Tether is sufficient to reflect the size of a leading issuer. Its second-quarter attestation report shows that it directly holds $114.96 billion in short-term Treasury bills, along with an additional $25.62 billion in overnight and term repurchase agreements. The $29 billion in selling pressure from foreign investors in June was approximately one-quarter of Tether’s direct Treasury holdings.
This comparison is for scale reference only; the TIC report data does not prove that overseas institutions' sold bonds were directly acquired by Tether or other issuers.
Circle, the issuer of USDC, also uses a similar reserve model. According to its reserve disclosure documents, the vast majority of USDC reserves are held in the Circle Reserve Fund, which is managed by BlackRock and is a government money market fund that can hold cash, short-term Treasury bills, and overnight U.S. Treasury repurchase agreements.
Although Tether and Circle have different reserve structures, both convert market demand for a digital dollar into demand for U.S. cash-equivalent assets.
Stablecoins are expected to become the desired buyers that the U.S. government is looking for.
It’s easy to understand why the U.S. government has high hopes for stablecoins. Overseas users can hold and transfer USD stablecoins without directly purchasing U.S. Treasuries, while stablecoin issuers invest their reserves in Treasury securities or repurchase markets. This allows dollars to reach overseas users, and the demand generated by these reserves flows back into the U.S. financial system.
However, this mechanism only generates new U.S. Treasury purchases when the circulating supply of stablecoins expands or when the issuer rebalances by swapping other assets. At the end of Q2, Tether’s USDT circulating supply was $184.6 billion, an increase of only about $446 million compared to the end of Q1. According to DefiLlama data, as of August 21, the total market capitalization of all stablecoins was approximately $302.1 billion, down slightly by 0.14% over the past 30 days.
The above data refutes a simple inference: the issuance of new tokens did not absorb the $29 billion in Treasury sell-off pressure; instead, issuers merely reallocated their existing reserves internally. Public data also provides no evidence that foreign holders directly sold their bonds to stablecoin issuers.
This mechanism also carries the risk of reverse operation: when a large number of users redeem stablecoins, the issuer may need to cash out by selling Treasury securities or allowing bonds to mature and be paid off. Stablecoins can become significant buyers of U.S. Treasuries, but they themselves are subject to cyclical fluctuations in buying and selling.
The next TIC report will be released on September 16, covering July data. The two key indicators to watch: foreign institutional holdings of short-term U.S. Treasuries and the total circulating supply of stablecoins. If foreign holders reduce their positions for a third consecutive month while stablecoin supply remains flat, the demand gap for U.S. Treasuries will persist; if stablecoin circulation increases alongside a corresponding rise in disclosed Treasury holdings by issuers, it indicates that this new class of buyers is intensifying their entry. Due to the custodial accounting model, these two datasets are difficult to align precisely.
In summary, foreign investors continued to allocate to U.S. assets in June, with significant inflows into equities and reduced holdings of short-term government cash bonds. Stablecoin issuers, holding tens of billions of dollars in U.S. Treasuries, have become an不可忽视 participant in U.S. Treasury demand. Tether’s second-quarter growth alone is insufficient to explain the large-scale sell-off in June.
On the short-term U.S. Treasury market, where overseas demand has weakened, the U.S. is establishing regulatory frameworks for a new class of potential buyers. The link between the digital dollar and U.S. government financing is precisely the core reason this $29 billion Treasury sell-off matters.