Ray Dalio warns US bond bear market has a long way to go as debt supply swamps demand

Bridgewater Associates founder Ray Dalio warns that the US bond bear market has a long way to run, arguing that the supply of debt and equity reaching markets is far larger than investors can absorb without higher yields and lower prices. In a new article, Dalio said developments since the June 2025 publication of his book on how countries go broke have tracked his template closely. He places the US in the middle of the cycle, where interest rates have risen sharply and central banks are tightening, but before those moves have hit stocks, credit spreads and economic activity. Historically, he said, rates keep rising at this stage until weakness in rate-sensitive markets and sectors restores balance.

On supply, Dalio cited about $32 trillion of marketable Treasury debt outstanding, up 8% in a year, with roughly $2.1 trillion of net new issuance expected in 2026. Treasury has shifted heavily toward short-term bills, which now account for about half of issuance against a historical target of around 20%. Dalio said this eases pressure on long-dated yields but raises rollover risk and makes interest costs more volatile. On demand, he said foreigners own about 32% of Treasuries and the Fed about 14%, with support shifting toward domestic buyers. He identified China and Japan as the key holders to watch. Concerns over US debt, diversification into gold and fear of sanctions are reducing Chinese appetite, while Japan has incentives to repatriate capital to support the yen and its bond market, which could unwind currency-hedged carry trades disruptively. Middle Eastern oil exporters are also buying less US debt.

Debt service is a second pressure point. Dalio said the average rate on existing debt is about 3.5%, against market rates of 4% to 5.5%, so interest costs will keep climbing as debt rolls over even if rates stay put. A one percentage point rise would eventually add about $310 billion a year in interest, and total debt service including principal rollovers is around 200% of government revenue, with interest costs about 21% of revenue.

Dalio stressed that Treasury is competing with a surge in corporate borrowing driven by AI investment, and expects total US net fixed-income financing needs of around $4.4 trillion in 2027. He described hyperscaler bond issuance as the canary in the coal mine, with rising capex already eroding free cash flow and pushing up credit spreads, which he suggests may require wider spreads on AI-linked corporate bonds to clear the market. Equity supply is also surging, with issuance hitting a $1.8 trillion annualised pace in the first half, which he sees as a strain on stocks once higher yields bite. Globally, OECD governments are expected to borrow about $18 trillion gross in 2026. Dalio concluded that the supply of financial assets appears much larger than demand can absorb, while noting his views are not investment advice.