The U.S. House of Representatives has passed the debt ceiling bill, but Circle will still convert all USDC reserves into a buyback agreement.

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The House Passes Debt Ceiling Bill

According to Bloomberg, the U.S. House of Representatives passed a debt ceiling bill on Wednesday night crafted by President Biden and Speaker Kevin McCarthy, which will limit government spending during the 2024 election year and avoid a default on U.S. bonds.

The bill was passed by a vote of 314-117 with overwhelming bipartisan support and will now be sent to the Senate for consideration. According to Senator John Thune, the Senate may reach an agreement and pass the bill on Friday night, a few days ahead of Treasury Secretary Yellen's estimated cash depletion date of June 5.

The debt ceiling bill will eliminate the threat of another default crisis within the remaining time of Biden's current term and extend the debt limit until January 1, 2025. In exchange, Democrats have agreed to limit federal spending, which may force some austerity measures within government service sectors.

Circle Converts Reserves Entirely into Repurchase Agreements

In mid-May, stablecoin issuer Circle began converting several maturing short-term U.S. Treasury bonds into Tri-Party Repurchase Agreements totaling $8.7 billion. A spokesperson noted that while a U.S. bond default is unlikely, this adjustment provides additional security for USDC reserves. The reserves have now been entirely converted into repurchase agreements.

For recent changes in USDC reserve policies, see: Circle Converts $8.7 Billion in Short-Term U.S. Bonds into Repurchase Agreements to Address U.S. Bond Default Crisis

Although the U.S. debt ceiling issue appears temporarily resolved, from Circle's perspective, the interest rates on repurchase agreements are notably higher than short-term U.S. bond yields, and the counterparties are major banks such as Goldman Sachs, Morgan Stanley, and Barclays, all without default risk. Looking at the reserve data from May 16 in the image below, short-term U.S. bond yields range from 3.43% to 4.42%, while overnight rates on repurchase agreements are almost close to 5%. Calculated based on its fund size of $24.7 billion, the annual returns differ by $200 million. Why not take advantage of this opportunity?