Ray Dalio, founder of the $110 billion Bridgewater Associates LP, is warning about the dangers associated with U.S. Treasurys. He thinks that these risks are even much greater than what credit rating agencies have focused. Dalio’s comments were made as a part of the Greenwich Economic Forum that took place in Greenwich, Connecticut on October 3, 2023. Most importantly, he focused on the failure of existing credit ratings to truly capture the financial threats around which the U.S. government now operates.
Dalio chirped on the social media platform X. He stressed that credit ratings greatly understate credit risks, looking narrowly at only the government’s chance of paying back its bills. He went further than that. These ratings overlook what may be the biggest risk of all — inflation and currency devaluation, he said.
“Said differently, 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.” – Ray Dalio
Dalio’s statements came on the heels of Moody’s latest downgrade of the U.S. credit rating. This loss of a perfect score was no small thing. Moody’s was indeed the last of the big three credit rating agencies to downgrade. After this announcement, U.S. stocks immediately lost over $600 billion in value. At the same time, the yield on the 30-year Treasury bond soared to 4.995%, and the 10-year note yield jumped to 4.521%.
Bridgewater Associates LP, once seen as a $150 billion powerhouse, has seen turbulent times. In March of this year, Reuters reported that the firm’s assets under management plummeted by 18% so far in 2024. They plummeted to just $92 billion. This drop might further deepen investor worry over U.S. Treasurys. Add Dalio’s warnings about growing economic risks and you’ve got a recipe for worry.
Dalio’s case was that today’s evaluations don’t measure up. They do not address the risk of accommodating monetary regimes that would encourage governments to print additional money to meet their debts. He threatened bondholders with losses on their investment. It can happen through diminished purchasing power, not only through reduced interest payments.
“They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting).” – Ray Dalio
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