Dalio Sounds the Alarm Again: The U.S. Treasury Bear Market Has "a Long Way to Go"! Will Rising Yields Eventually Trigger the AI Bull Market's "Kill Line"?

Title context: Dalio Sounds the Alarm Again: The U.S. Treasury Bear Market Has "a Long Way to Go"! Will Rising Yields Eventually Trigger the AI Bull Market's "Kill Line"? Text: As long-dated U.S. Treasury yields of 10 years and above continue to surge, legendary U.S. investor and Bridgewater founder Ray Dalio has once again warned global stock and bond marketsglobal government and corporate financing is surging, while the willingness of traditional large buyers to absorb it may weaken further. Rising yields and tightening paths from the Federal Reserve and other central banks will in turn further expand debt-servicing burdens, forming a self-reinforcing debt-cycle trap. Facing U.S. Treasury assets whose yield indicators continue to surge, Dalio directly warned that the bear-market-like decline in the U.S. Treasury market "may still have a long way to go." In an October 6 speech, Dalio previously reiterated that the United States could suffer a major debt crisis within three years. On U.S. Eastern Time on the 13th, he went further with an early-warning judgment that the bond bear market is still far from over. His core concern is that an enormous wave of new financing demand is challenging the market's ability to continue absorbing debt. On October 13, the U.S. 10-year and 30-year Treasury yields were 5.21% and 5.56%, respectively. Although they had pulled back from recent highs, they were still up 46 and 31 basis points from the end of August and remained near their highest levels in more than two decades. CME data that day showed that interest-rate futures traders priced about a 19% probability of another Fed rate hike in October and about an 88% probability of a Fed rate hike in December, indicating expectations for further tightening by year-end remained strong. Dalio's latest warning implies that stock and bond markets face a repricing of the cost of capital driven by an imbalance between financing supply and demandgovernments continue to issue debt, companies are financing AI buildouts, and traditional buyers' willingness to absorb supply is weakening, potentially forcing issuers to attract funds with higher yields. For bonds, continued rises in yields cause price losses, with long-duration instruments especially sensitive. For stocks, a higher discount rate lowers the present value of future profits, while more expensive borrowing erodes earnings and constrains expansion. As a result, bond declines and equity valuation contraction may occur simultaneously, weakening the effectiveness of stock-bond hedging. As high rates/high yields gradually transmit through refinancing of old debt, the market must also reassess whether corporate earnings can withstand persistently elevated funding costs. Enormous pressure on the energy supply side is still prolonging this tug-of-war between U.S. Treasury yields and Fed policy-rate pricing. On October 13, Brent crude and WTI crude futures closed at $105.69 and $94.14 per barrel, respectively, meaning they had surged 46% and 42% from before the U.S.-Iran war at the end of February. U.S. diesel futures rose about 5% intraday. Data disclosed by ING showed that on October 7, the ICE diesel crack spread was about $73 per barrel. Although below September's extreme high of more than $90, it was still at a historically high level, indicating a heavy premium from refined-product shortages. Restoring crude supply cannot immediately repair refining and transportation bottlenecks. Higher diesel prices will transmit along freight, agricultural and industrial supply chains, making it harder for inflation to cool quickly. The geopolitical situation presents a coexistence of diplomatic negotiations and military strikesIran is still reviewing the U.S. response to the Hormuz proposal, while the administrative building of Saudi Aramco, one of the world's largest oil and gas giants, was attacked on the evening of the 13th. Russia-Ukraine energy ceasefire contacts continue, while Kyiv was still attacked by Russian forces. The diplomatic window has not yet translated into reliable energy security guarantees, and it is hard to say the situation has substantially eased. Dalio Warns: U.S. Treasury Decline "May Still Have a Long Way to Go" Billionaire investor Ray Dalio warned that the U.S. bond selloff is far from over, because surging government and corporate borrowing is running into weakening demand from some of the world's largest traditional buyers. The Bridgewater founder said in a heavyweight LinkedIn post on Tuesday that the United States is entering a phase in which expanding bond supply pushes yields higher, which in turn raises financing costs and further increases debt. He said this cycle may continue until higher interest rates sufficiently weaken the economy and financial markets, rebalancing supply and demand. Dalio founded Bridgewater in 1975 and has long studied economic cycles through debt, money and cross-border capital flows. His remarks have long drawn active attention from global institutional and retail investors because he tends to push discussions of stock and bond markets beyond the logic of the next Fed monetary policy decision to "who will continue to absorb new debt." This distinctive analytical framework may strengthen investors' risk scrutiny of long-duration debt assets, but his personal judgment does not represent Bridgewater's current positioning. "The bond bear market may still have a long way to go," Dalio wrote. Dalio has long warned that a U.S. debt crisis could ignite a deep bear market in U.S. stocks, and he advocates that investors sell bond assets and continue buying gold. His bearish stance stands in sharp contrast with the actively bullish positions of some investors and strategists, including professionals at BlackRock and Morgan Stanley Investment Management who recently put forward bullish views. After the 10-year U.S. Treasury yield rose this month to the highest level in nearly a quarter-century, approaching 5.4%, they turned bullish on U.S. Treasury assets. This Wall Street debate and fierce argument over the debt crisis comes in a year in which the bond market has been battered. Energy price increases and economic resilience prompted the Fed to return to rate hikes, and combined with a flood of government and corporate financing, a Bloomberg index tracking U.S. Treasuries has fallen about 2.4% this year. The U.S. Treasury price indicator may record its first annual decline since 2022; that year, as the Fed began one of its most aggressive hiking cycles to curb inflation, U.S. Treasury prices fell 12.5%. A forecast published by Dalio shows that, measured by total debt and bond-servicing costs relative to government revenue, the U.S. debt burden has reached its highest level since World War II and will worsen further in the coming years. According to Dalio's own forecasts, the U.S. government needs to refinance about $10 trillion of maturing debt this year while adding $2.1 trillion of new borrowing. He warned that with such a massive amount maturing, even a slight decline in investors' willingness to reinvest maturing proceeds into U.S. Treasuries could create a significant financing gap. What is worrying is that some of the largest foreign creditors, including China and Japan, may reduce their willingness to buy bonds. Dalio said, for example, that Japanese fiscal and economic policy decision-makers have incentives to encourage domestic investors to reduce their holdings of $1.1 trillion in U.S. Treasuries and repatriate funds to support the yen and Japan's domestic bond market. Persistently rising Japanese government bond yields may reinforce this trend. The U.S. Treasury also faces pressure from companies competing for funds: companies are issuing more bonds and stocks to finance AI buildouts. Dalio noted that there are already signs that investors are beginning to demand greater "concessions from issuers in order to absorb this supply," and he called the corporate credit market "the canary in the coal mine." "Taken together, these factors have long made shorting U.S. Treasuries more advantageous than going long, and that remains the case today," Dalio wrote. Massive Interest Costs Devour Fiscal Space, and the Unprecedented AI Investment Boom Also Needs to Withstand the Test of Financing Costs Behind Dalio's warning is the core issue that government debt issuance and AI buildout financing are expanding simultaneously, while the capacity to absorb funds may not grow in tandem, forcing borrowers to pay higher interest rates. For the AI computing power supply chain, rising long-term yields will both raise the discount rate on future earnings and increase the costs of data center construction, equipment procurement and debt refinancing. Computing power revenue, however, can only be realized after grid connection, equipment delivery and utilization ramp-up. Once a project's expected return struggles to consistently exceed its cost of capital, companies that rely heavily on financing may slow expansion, and pressure will then transmit along orders to core suppliers in the AI computing power supply chain, including chips, storage, CPUs and data center optical interconnect systems. The so-called "kill line" for the AI bull market is precisely when the earnings growth required by high valuations and high capital expenditure begins to struggle to withstand persistently rising funding costsits threshold depends on corporate cash flow and actual project returns, not on a single uniform U.S. Treasury yield level. For the AI super-bull market that underpins the trajectory of the global stock market bull run, especially the popular AI computing infrastructure-related stocks that have soared in recent years, Dalio's latest warning implies that the market will scrutinize more strictly whether massive capital expenditure can be converted into cash flow that covers the cost of capital. Data centers must pay upfront for chips, power and construction, while revenue realization depends on power-up progress, computing utilization and customers' ability to pay. Hardware depreciation also continuously consumes economic value. The higher financing costs rise, the more the corporate credit market will compete with long-duration U.S. Treasury issuance for the same funding pool, meaning there is less room for project delivery delays and underutilization. With corporate bond issuance and long-term U.S. Treasury supply expanding simultaneously, if investors' capacity to absorb them does not strengthen accordingly, competition for funds will intensify and financing costs will rise. Higher funding costs not only increase interest burdens during project construction but also raise cash flow requirements after production begins, further narrowing the room companies have for delivery delays and underutilization. Therefore, new cloud and data center operators that rely directly on continuous debt-funded expansion for a long time face more direct pressure. If customers delay investment as a result, pressure may also transmit along orders to GPU, ASIC, storage and optical interconnect suppliers. The stress test for the AI super-bull market thus extends deep into competition over financing capacity, order fulfillment and return on investment: companies with ample cash flow, high delivery certainty and project returns that can consistently exceed the cost of capital are better positioned to support valuations. Preliminary estimates from the CBO (U.S. Congressional Budget Office) show that the U.S. deficit for fiscal year 2026 is about $1.993 trillion, with net interest expense of $1.143 trillion, meaning they are expected to surge by about 12% and 11% year over year, respectively. When old debt matures and is refinanced at higher rates, interest expense gradually climbs. If tax and spending adjustments cannot keep pace, new deficits will require even more debt issuance. This fiscal risk will raise the long-term holding return investors demand, but fortunately, there is not yet sufficient and substantive evidence that this round of U.S. Treasury and even global long-dated government bond selling is mainly driven by imminent sovereign default risk. The scale of refinancing makes marginal buying especially criticalbased on Dalio's estimated $10 trillion of maturing debt, every 1 percentage point decline in the reinvestment ratio would require finding about $100 billion in replacement funds. Therefore, even if overseas creditors do not sell in a concentrated manner, merely reducing their willingness to roll over maturing holdings could force issuers to attract new buyers with higher yields. Since the end of August, the 10-year real yield has risen 44 basis points. After the recent yield pullback, this is close to the entire 46 basis point increase in the nominal yield over the same period, indicating that this adjustment involves a significant repricing of the real cost of capital. The enormous trillions-of-dollars AI computing infrastructure buildout first occupies financing, power and equipment, with productivity gains realized later. When governments and companies compete for funds at the same time, data center projects must cover capital costs with higher utilization and cash flow. If corporate credit market spreads widen in tandem, there will also be a double squeeze from benchmark rates and credit premiums. Global capital reallocation may transmit pressure to overseas bond markets while raising the discount rate for tech stocks and the opportunity cost of holding gold. The U.K. 30-year government bond yield briefly touched 6.05% on October 8, the highest since 1998, reflecting the global nature of this long-bond repricing.