Ray Dalio, founder of Bridgewater Associates. (Reuters photo)
[Financial Channel/Comprehensive Report] Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, warned that the U.S. bond sell-off is far from over, as a surge in government and corporate borrowing contrasts with weak demand from some of the world's largest traditional buyers.
"Bloomberg" reported that Dalio posted on LinkedIn that the United States is entering a stage where the increase in bond supply is pushing up yields, raising borrowing costs, and further pushing up debt levels. He said the spiral could end only when high interest rates weaken the economy and financial markets, bringing supply and demand back into balance.
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"The bond bear market may still be a long way off," Dalio wrote.
Dalio has long warned that a U.S. debt crisis is imminent and advised investors to sell bonds and buy gold. His pessimistic stance contrasts with the views of some investors and strategists, including those at BlackRock Group Inc.
The debate comes as bond markets have been hammered, with a Bloomberg index tracking U.S. debt down about 2.4%, as rising energy prices and economic resilience prompted the Federal Reserve to raise interest rates and heavy borrowing by governments and businesses added to pressure. U.S. Treasuries are expected to post their first full-year decline since 2022, when U.S. Treasuries plunged 12.5% as the Federal Reserve sharply raised interest rates to curb inflation.
Dalio estimates that the U.S. debt burden, measured by total borrowing and bond service costs relative to government revenue, has reached its highest level since World War II and will worsen in the coming years.
Dalio said that the government is expected to roll over approximately US$10 trillion (approximately NT$322.45 trillion) of maturing debt this year and increase borrowings by US$2.1 trillion (approximately NT$67.71 trillion). Dalio warned that due to the large amount of maturing funds, even if investors' willingness to reinvest is only slightly reduced, it may cause a huge funding gap.
The concern is that some of the largest foreign creditors, including China and Japan, may be less willing to buy bonds. Dalio mentioned that Japanese policymakers are motivated to encourage domestic investors to reduce their holdings of US$1.1 trillion (approximately NT$35.46 trillion) in public bonds and repatriate funds to support the yen and Japan's domestic bond market.
The U.S. Treasury Department also faces increasing competition for funding from companies, which are selling more debt and equity to fund AI. Dalio pointed to signs that investors are starting to demand bigger concessions to absorb supply. Dalio wrote that the combination of all these factors, the supply of new debt and expected changes in demand, made it easier to be short U.S. Treasuries over the long term than to be long, and that remains the case today.
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