Foreign investors continued to move significant amounts of money into US financial markets in June, sending a net $133.5 billion into American securities and banking assets despite reducing their holdings of short-term US government debt.
Data from the US Treasury’s monthly Treasury International Capital (TIC) report showed that foreign investors purchased $207.1 billion in long-term US securities during the month, with American equities accounting for the largest share.
Foreign buyers acquired $181.4 billion worth of US stocks, while purchases of long-term Treasury notes and bonds amounted to just $6.8 billion.
At the same time, foreign investors sold approximately $29 billion in US Treasury bills, which are government securities that mature within one year.
The figures reveal a shift in the composition of foreign investment rather than a broad withdrawal from US markets. While overseas investors continued to favour American companies, their appetite for short-term government debt weakened.
Foreign holdings of short-term Treasuries dropped from about $1.43 trillion in May to roughly $1.40 trillion in June. The decline followed a $43.5 billion reduction in May, bringing the two-month sell-off to approximately $72.5 billion.
The TIC data does not indicate why foreign investors reduced their Treasury bill holdings. The move could reflect changes in cash management, portfolio preferences or investment in other assets.
The figures are also complicated by the way international securities ownership is recorded. Assets held through financial custodians can make it difficult to determine the actual country of the underlying investor.
The decline in foreign demand for Treasury bills has also drawn attention to the growing role of stablecoins in the US government debt market.
Stablecoin issuers such as Tether and Circle typically hold reserves in highly liquid assets, including Treasury bills and related instruments. As a result, increased demand for dollar-backed stablecoins can indirectly create additional demand for US government debt.
When someone purchases a dollar stablecoin, the issuer receives the funds and places the backing in reserve assets. If those reserves are invested in Treasury bills, the transaction effectively channels money into US government debt without the stablecoin holder directly purchasing a Treasury security.
The GENIUS Act has established a federal framework for regulated payment stablecoins, including requirements for liquid reserves. A proposed Treasury rule released on August 17 also gives favourable treatment to cash, short-term Treasury obligations and certain repurchase agreements.
Tether’s scale illustrates the potential impact of the sector. The company’s second-quarter attestation reported $114.96 billion in direct Treasury bills, along with another $25.62 billion in overnight and term repo positions.
For comparison, the entire $29 billion reduction in foreign Treasury bill holdings during June was roughly one-quarter of Tether’s direct Treasury bill portfolio. However, the TIC figures do not establish that Tether or another stablecoin issuer purchased the securities sold by foreign investors.
Circle follows a similar reserve strategy for its USDC stablecoin. Its disclosures show that much of the backing is held through the Circle Reserve Fund, a government money-market fund managed by BlackRock that can invest in cash, short-term Treasuries and overnight Treasury repo.
Stablecoins could therefore become an increasingly important source of demand for US government debt, particularly if their circulation continues to expand.
However, recent data suggests that stablecoin growth alone did not absorb June’s $29 billion foreign Treasury bill sale. Tether reported $184.6 billion of USDT in circulation at the end of the second quarter, representing an increase of only about $446 million from the previous quarter.
The broader stablecoin market was valued at roughly $302.1 billion as of August 21, according to DeFiLlama, with supply down slightly over the preceding 30 days.
Stablecoin flows can also work in the opposite direction. When users redeem their tokens, issuers may need to raise cash by selling Treasury bills or allowing securities to mature.
The next TIC report, covering July, is scheduled for release on September 16. Investors will be watching foreign Treasury bill holdings alongside stablecoin circulation and reserve disclosures for signs of whether stablecoin issuers are becoming a larger source of demand for US government debt.
Overall, June’s figures show that foreign investors were still heavily invested in the US, particularly its stock market. But their reduction in short-term Treasury holdings highlights a potential gap that stablecoin issuers could increasingly help fill as the digital-dollar market expands.
