Key Takeaways
- • Ray Dalio, founder of Bridgewater Associates, warned that the US bond selloff "probably has a long way to go," according to a social media post cited by The Standard (HK).
- • Dalio estimated the US debt burden, measured by total borrowings and bond-service costs relative to government revenue, has reached its highest level since World War II.
- • The US government is expected to roll over about US$10 trillion of maturing obligations this year and needs US$2.1 trillion of additional financing, per Dalio.
- • Dalio flagged China and Japan as the most important foreign Treasury holders to watch, as their incentives have shifted toward reducing holdings of US debt.
- • Dalio's bearish view contrasts with BlackRock and Morgan Stanley strategists, who have turned bullish after 10-year Treasury yields surged to the highest in nearly 25 years, approaching 5.4 percent.
Summary
US billionaire investor Ray Dalio warned that the US bond selloff is far from over, as surging government and corporate borrowing meets fading demand from some of the world's largest traditional buyers of debt. Dalio, founder of Bridgewater Associates, one of the largest hedge funds in the world, made the comments on social media, where he wrote that "the bond bear market probably has a long way to go" and that investors "should be alerted to the other markets' possible weakness."
According to Dalio, the US is entering a stage in which additional bond issuance pushes yields higher, which in turn raises borrowing costs, widens deficits and leads to still more debt. He said this "death spiral" is unlikely to end until higher rates weaken the economy and markets enough to restore a balanced, sustainable level of supply and demand. He estimated the US debt burden, measured by total borrowings and bond-service costs relative to government revenue, has reached its highest level since World War II and is set to worsen in coming years.
Dalio said the government is expected to roll over about US$10 trillion of maturing obligations this year and requires US$2.1 trillion in additional financing. Given the scale of maturities, he warned that even a modest decline in investors' willingness to reinvest proceeds could create a significant funding gap.
Dalio singled out China and Japan, two of the largest beneficial holders of US Treasuries, as the most important holders to watch, since their incentives have shifted from accumulating to reducing Treasury holdings. He said Japanese policymakers have an incentive to encourage domestic investors to reduce their US$1.1 trillion of Treasury holdings and repatriate capital to support the yen and the local bond market, and that rising Japanese yields would encourage that shift.
Dalio's stance contrasts with some investors and strategists, including those at BlackRock and Morgan Stanley, who have turned bullish after 10-year Treasury yields surged to the highest level in nearly a quarter century this month, approaching 5.4 percent. Related coverage of Dalio's remarks noted he has also warned that stocks face mounting pressure from rising bond yields and weaker corporate cash flows, with earnings providing a buffer that is shrinking.
According to Dalio, the US is entering a stage in which additional bond issuance pushes yields higher, which in turn raises borrowing costs, widens deficits and leads to still more debt. He said this "death spiral" is unlikely to end until higher rates weaken the economy and markets enough to restore a balanced, sustainable level of supply and demand. He estimated the US debt burden, measured by total borrowings and bond-service costs relative to government revenue, has reached its highest level since World War II and is set to worsen in coming years.
Dalio said the government is expected to roll over about US$10 trillion of maturing obligations this year and requires US$2.1 trillion in additional financing. Given the scale of maturities, he warned that even a modest decline in investors' willingness to reinvest proceeds could create a significant funding gap.
Dalio singled out China and Japan, two of the largest beneficial holders of US Treasuries, as the most important holders to watch, since their incentives have shifted from accumulating to reducing Treasury holdings. He said Japanese policymakers have an incentive to encourage domestic investors to reduce their US$1.1 trillion of Treasury holdings and repatriate capital to support the yen and the local bond market, and that rising Japanese yields would encourage that shift.
Dalio's stance contrasts with some investors and strategists, including those at BlackRock and Morgan Stanley, who have turned bullish after 10-year Treasury yields surged to the highest level in nearly a quarter century this month, approaching 5.4 percent. Related coverage of Dalio's remarks noted he has also warned that stocks face mounting pressure from rising bond yields and weaker corporate cash flows, with earnings providing a buffer that is shrinking.
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