Ray Dalio, the founder of Bridgewater Associates, has expressed concerns that the risks to U.S. Treasurys are higher than what Moody’s recent credit rating downgrade suggests. Dalio argues that the possibility of the federal government printing money to pay its debt could lead to a devaluation of the dollar and significant losses for bondholders. “You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt,” Dalio said.
“They don’t include the greater risk that countries in debt will print money to pay their debts, thereby causing holders of the bonds to suffer losses from the decreased value of the money they’re getting.”
Moody’s downgraded the U.S. credit rating by one notch to Aa1 from Aaa on Friday, citing the growing budget deficit and soaring interest payments on the federal debt. This move followed similar downgrades by the other two major credit agencies. The downgrade led to a sharp increase in yields, with the 30-year Treasury bond yield spiking to 4.995% and the 10-year note yield climbing to 4.521%.
Dalio’s critique on credit risks
“In simple terms, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying,” Dalio emphasized. Bridgewater’s assets under management dropped 18% in 2024 to approximately $92 billion, down from a peak of $150 billion in 2021.
Dalio’s warning comes amid growing concerns about the U.S. government’s fiscal trajectory and the potential impact on financial markets. Investors are closely monitoring developments in Washington and the Federal Reserve’s response to the evolving economic landscape. As the debate over the risks to U.S. Treasurys continues, market participants will be watching for any further signs of volatility or shifts in investor sentiment.
The implications of Dalio’s assessment and the recent credit rating downgrades could have far-reaching consequences for the global financial system.
