Ray Dalio Warns China and Japan May Trim U.S. Treasury Holdings

Bridgewater Associates founder Ray Dalio warned that weaker demand from China and Japan could add pressure to the U.S. Treasury market as the 10-year U.S. Treasury yield hovers around 5.3%, its highest level since 2002.

The two countries have reduced their combined Treasury holdings by $198.7 billion since the start of the year. Japan held $1.1039 trillion in Treasury securities as of July, making it the largest foreign holder of U.S. government debt. China held $618 billion, ranking third.

Dalio said tensions between Washington and Beijing have reduced China’s willingness to expand its holdings of U.S. government debt. He also said Japan has lent “a lot of money” and now wants to bring funds back home.

The warning comes amid a global bond-market selloff. Inflation, government spending and resilient economic growth have weakened demand for government debt, while bond prices have continued falling this week after a decline lasting several months.

Dalio also repeated his warning that the United States could face a debt crisis within three years. His comments highlight the pressure that elevated borrowing costs and weaker demand from major foreign Treasury holders could place on the U.S. government’s financing needs.