The billionaire investor Ray Dalio issued a stark warning on Thursday about the risks in the bond market due to the soaring U.S. debt and deficits. Speaking at an event in New York, Dalio emphasized that the situation should make investors wary of government bonds. “I think we should be afraid of the bond market,” Dalio said.
“It’s like I’m a doctor, and I’m looking at the patient, and I’ve said, you’re having this accumulation, and I can tell you that this is very, very serious. I would say that if we’re really looking over the next three years, give or take a year or two, we’re in a critical situation.”
Dalio, the founder of one of the world’s largest hedge funds, Bridgewater Associates, has long warned about the growing U.S. deficit. Recently, investors have been demanding lower prices for the bonds that finance the government’s massive budget deficits, causing yields to rise.
Last week, Moody’s downgraded the U.S. credit rating due to rising fiscal concerns. On Thursday, the yield on the 30-year Treasury was around 5.14%.
Facing bond market risks
Higher financing costs, along with continued spending growth and declining tax receipts, have caused deficits to spiral, pushing the national debt to unprecedented levels. In 2024, interest payments on the debt were the government’s second-largest expenditure, after Social Security, defense, and healthcare. “We will have a deficit of about 6.5% of GDP — that is more than the market can bear,” Dalio stated.
He expressed doubt that politicians would be able to reconcile their differences to address the country’s debt load. On Thursday, House members passed a bill along party lines that lowers taxes and increases military spending. The bill, now moving to the Senate, could further exacerbate the deficit at a time when fears of inflation due to higher tariffs are already negatively impacting bond prices and increasing yields.
“I’m not optimistic. I have to be realistic,” Dalio said. “The essence of the challenge in our country is that anything related to bipartisanship and overcoming political hurdles essentially means ‘give me more,’ which contributes to these deficits.”
Dalio’s warnings highlight the urgent need for fiscal responsibility as debt rises and the bond market faces potential volatility.
