The U.S. is approving stablecoins for a strategic reason: they require reserves, which must be U.S. treasuries. This policy creates a massive, new, non-traditional buyer for government debt, helping to finance enormous and growing fiscal deficits with a structural source of demand.

Contrary to fears of a spike, a major rise in 10-year Treasury yields is unlikely. The current wide gap between long-term yields and the Fed's lower policy rate—a multi-year anomaly—makes these bonds increasingly attractive to buyers. This dynamic creates a natural ceiling on how high long-term rates can go.

The Fed has a clear hierarchy for managing liquidity post-QT. It will first adjust administered rates like the Standing Repo Facility (SRF) rate and use temporary open market operations (TOMOs) for short-term needs. Direct T-bill purchases are a more distant tool, reserved for 2026, as the system is not yet at 'reserve scarcity'.

Concerns over US term premium have receded partly because the Treasury buyer base has stabilized. The declining share of price-insensitive buyers (Fed, foreign investors, banks), which fell from 75% to 50% over a decade, has finally stopped falling, creating a more supportive demand backdrop.

Due to massive government debt, the Fed's tools work paradoxically. Raising rates increases the deficit via higher interest payments, which is stimulative. Cutting rates is also inherently stimulative. The Fed is no longer controlling inflation but merely choosing the path through which it occurs.

The Federal Reserve’s decision to end Quantitative Tightening (QT) is heavily influenced by a desire to avoid a repeat of the 2019 funding crisis. The 'political economy' of the decision is key, as the Fed aims to prevent giving critics 'ammunition' by demonstrating it can control short-term rates.

The Federal Reserve is expected to buy approximately $280 billion of T-bills in the secondary market next year. This significant demand source provides the Treasury with flexibility, allowing it to temporarily exceed its long-term T-bill share target of 20% without causing market disruption.

Lacking demand for long-term bonds, the Treasury issues massive short-term debt. This requires a larger cash balance (TGA) to avoid failed auctions, draining liquidity from the very markets needed to finance this debt, creating a self-reinforcing crisis dynamic.

When the Treasury does increase coupon issuance, it will concentrate on the front-end and 'belly' of the curve, leaving 20 and 30-year bond auctions unchanged. This strategy reflects slowing structural demand for long-duration bonds and debt optimization models that favor shorter issuance in an environment of higher term premiums.