Ray Dalio advises being wary of the bond market as the deficit gets worse

 

The rising U.S. debt and deficits, according to billionaire investor Ray Dalio, should make investors wary of the government bond market. Dalio issued another warning on Thursday.

At a Paley Media Council event in New York, Dalio stated, "I believe we should be terrified of the bond market." "I'm a doctor, and as I examine the patient, I say, 'You're having this accumulation, and I can tell you that this is very, very severe, but I can't give you the exact moment. But it's like that. If we truly look at the next three years, to give or take a year or two, I would say that we are in that kind of dire situation.

For years, the founder of Bridgewater Associates, one of the biggest hedge firms in the world, has issued dire warnings about the growing U.S. deficit. Yields on the debt have increased recently as investors have started to demand lower prices in order to purchase the bonds that cover the government's enormous budget deficits. Moody's issued a high-profile credit rating drop last week due to growing concerns about the budgetary situation.

On Thursday, the 30-year Treasury yield hovered around 5.14%, reaching levels not seen since 2023.

The national debt has surpassed $36 trillion as a result of spiralling deficits brought on by rising finance costs, ongoing spending increases, and falling tax revenues. Interest payments accounted up the largest portion of government spending in 2024, aside from Social Security, defence, and healthcare.

Dalio predicted that the market would be unable to handle a deficit of roughly 6.5% of GDP.

Dalio expressed his lack of hope that lawmakers would be able to work out their disagreements and reduce the nation's debt. Early Thursday, House members passed legislation that increases military spending and reduces taxes in a party-line vote. At a time when concerns about a spike in inflation brought on by increased tariffs are already affecting bond prices and raising rates, the plan, which is currently headed to the Senate, may add trillions to the U.S. government's debt and deepen the deficit.

"I'm not hopeful. Dalio remarked, "I have to be realistic." "I believe that the core of our nation's problem is that anything pertaining to bipartisanship and overcoming political obstacles basically means 'give me more,' which results in these deficits."