What to Watch for in a "Bear" Bond Market: Ray Dalio's Rules

The U.S. has already found itself in a “death spiral” of public debt, according to Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund. Rising borrowing forces investors to demand higher returns, increased interest expenses widen the budget deficit, and the government is forced to borrow even more, he explains on his LinkedIn page.

The situation is exacerbated by growing competition for investors’ money: governments and companies around the world are issuing more and more bonds and stocks, while demand is failing to keep pace with supply. In 2027, U.S. borrowers alone will need about $4.4 trillion in new debt financing, not counting the refinancing of existing debt, the billionaire notes.

Dalio warns that such an imbalance threatens to cause a further decline in bond prices, which could then impact stocks and the economy. The U.S. could attempt to ease its debt burden by printing money. However, this approach creates another risk for investors—the depreciation of the dollar and debt obligations.

What, in Dalio's opinion, should investors pay attention to?

Dalio urges investors to keep an eye on the bonds issued by tech giants that are financing AI development through borrowing. In his view, the corporate debt market could serve as a “canary in a coal mine” for the financial system.

In the first half of 2026, the largest companies developing AI infrastructure issued $220 billion in bonds, compared with $108 billion for all of 2025, Dalio writes. Large-scale capital expenditures are reducing their free cash flow, and investors are demanding higher yields on new bonds. For shareholders, this is a warning sign: the more expensive borrowing becomes, the higher the return on AI investments must be. According to Dalio, a further rise in borrowing costs could lead to a funding crunch and intensify pressure on stocks and other financial markets.

Dalio notes that, given this balance of supply and demand, it is easier to bet on a decline in the price of U.S. Treasury bonds than on an increase. At the same time, he emphasizes that he does not give investment advice: in his words, his goal is to teach investors to “fish” rather than to give them the “fish” itself.

By the end of September 2026, the outstanding U.S. public debt had reached $32 trillion—an 8% increase from a year earlier. According to forecasts, the Treasury Department will raise $2.1 trillion through net new borrowing in 2026. Foreign investors are buying U.S. Treasury bonds at a slower and slower pace, and demand for long-term securities is particularly weak, Dalio writes. As a result, the U.S. Treasury is increasingly borrowing for short terms: Treasury bills (T-bills) with maturities of up to one year now account for about 50% of all issuances. According to Dalio, bond yields will continue to rise, while their prices will continue to fall.

"The bond market bear market is probably far from over," the billionaire notes.

Dalio points out a trend that is troubling for the stock market: companies that were once major net buyers of assets are now increasingly raising capital themselves through the issuance of new securities. In the first half of 2026, the volume of new shares issued by U.S. non-financial companies reached $1.8 trillion on an annualized basis—excluding share buybacks and other share purchases. A significant portion of these new offerings is related to AI financing.

According to Dalio, the growing supply of stocks is putting additional pressure on the stock market. However, the effects of high interest rates have not yet led to a decline in stock prices.

Dalio believes it is important for investors to monitor the actions of China and Japan—the two largest foreign holders of U.S. government debt. In total, foreign investors hold about $9.3 trillion in U.S. Treasury bonds, or 32% of the total.

China is gradually reducing its accumulation of dollar-denominated assets and diversifying its reserves, including by increasing its holdings of gold. According to Dalio’s calculations, if Chinese private investors decide to convert or hedge against currency risk on just 10% of their dollar-denominated assets, this could lead to the sale of $400 billion in dollars and significantly impact currency markets.

It is becoming more profitable for Japanese investors to repatriate capital to the domestic market due to rising yields on local government bonds. At the same time, their investments in U.S. government debt total about $1.1 trillion. Dalio warns that the repatriation of Japanese capital could lead to the unwinding of interest rate differential trades and cause serious turmoil in financial markets.

This article was AI-translated and verified by a human editor