During a recent conversation at the Greenwich Economic Forum, Ray Dalio, co-founder of Bridgewater Associates and often referred to as the “king of hedge funds,” raised serious concerns about the current state of U.S. government bonds. He believes that recent volatility in the bond market has rendered them a less sound investment. Dalio pointed out that investors seem overly optimistic about rapid interest rate cuts from the Federal Reserve, which recently lowered its benchmark interest rate by 0.5 percentage points for the first time in four years. However, he noted that the strong job report from September gives the Fed some latitude to pause on further rate cuts.
Dalio described the U.S. bond market as having experienced significant fluctuations this year, with the yield on two-year Treasuries varying between 3.5% and over 5%. He emphasized that government bonds represent a substantial segment of institutional investors’ and central banks’ portfolios, and he believes this concentration has become problematic. He also pointed to geopolitical uncertainties as additional challenges for the bond market.
“Foreign entities are cautious about holding U.S. bonds because they risk facing sanctions,” Dalio remarked.
In the course of the interview, Dalio also tackled the upcoming U.S. elections and their potential impact on the market. He expressed his support for former President Donald Trump’s economic policies, suggesting that Trump’s initiative to lower corporate taxes aligns more with traditional capitalism.
Dalio stated, “Trump has a compelling perspective on increasing tariffs,” estimating that these tariff proposals could generate around $800 billion in annual revenue, which would have inflationary implications.
