Former U.S. Treasury Secretary Warns: U.S. Treasury Market Faces a “Malignant” Crash Risk

Recently, former U.S. Treasury Secretary Henry Paulson issued a warning in an interview with Bloomberg, saying that the U.S. Treasury market could face a “malignant” crash and urging authorities to develop contingency plans in advance.

Paulson said that we need to develop a targeted, short-term, and readily available contingency plan so that when a crisis hits, it can be launched immediately. He admitted that he cannot know exactly when a crisis will occur, but emphasized that once it does happen, it will be extremely serious, and preparations must be in place.

The U.S. Treasury market is the cornerstone of the global financial system. As a “risk-free” benchmark, other assets such as corporate bonds, mortgages, and stocks are priced relative to U.S. Treasuries. If the U.S. Treasury market becomes unstable, it will set off a chain reaction across the global economy.

For years, economists have been warning about the potential “doomsday cycle” risk. Because the size of government debt exceeds $39 trillion, investors may also begin demanding higher Treasury yields;

This would also lead to increased interest payments. With the current 10-year Treasury yield at 4.3%, it would further widen the fiscal deficit. If the U.S. Treasury cannot raise enough funds to pay the interest, many believe the Federal Reserve will become the primary buyer.

For the crypto market, a Treasury crash is a double-edged sword, with intertwined pros and cons. In the short term, as yields surge sharply, global liquidity tightens, and risk-averse sentiment heats up, it would severely hurt Bitcoin and altcoins.

Meanwhile, stablecoins like Tether also face enormous risks. After all, Tether holds more than $120 billion in U.S. Treasuries. If market confidence in U.S. Treasuries collapses, Tether could face a wave of redemptions in the short term, which would lead to its value de-pegging.

But from a long-term perspective, this potential crisis could also accelerate capital flows into non-sovereign value storage tools such as Bitcoin, potentially pushing BTC into the position of “digital gold.”

It is worth noting that the U.S. Treasury just completed its largest-scale Treasury buyback on Thursday, taking in $15 billion of old bonds maturing between 2026 and 2028. This is intended to inject funds into the market by withdrawing older bonds with poorer liquidity, thereby enhancing liquidity in the Treasury market.

#U.S. Treasury Crisis