Photographer: David Paul Morris / Bloomberg
Photographer: David Paul Morris / Bloomberg
The US Federal Reserve will have to buy more bonds as an oversupply of government bonds drives up interest rates, said Ray Dalio, founder of Bridgewater Associates.
The recent fiscal stimulus announced by the Biden government will result in more bond sales to finance spending, exacerbating the “supply-demand problem for the bonds, which will put upward pressure on interest rates,” Dalio said. Saturday at a panel of the China Development Forum, an annual conference hosted by the Chinese government. That will “push the Federal Reserve into buying more, which will put downward pressure on the dollar,” he said.
He said the world is “very overweight in bonds” and that in real terms they are yielding minus 1 basis point, which is “very bad”.
“And not only may there not be enough demand, but it is also possible that we may start to see the sale of those bonds,” he said. “That situation is bearish for the dollar.”
Fed Chairman Jerome Powell said this week that it is current monetary policy appropriate and there is no reason to back down against last month’s surge in government bond yields.
– With help from John Liu and Yujing Liu