According to Bloomberg's report on October 6, billionaire investor Ray Dalio warned that US government debt could be impacted by declining demand from China and Japan. Both China and Japan are among the United States' largest overseas creditors, highlighting a potential risk that the US Treasury market, which has seen significant fluctuations this year, faces.
Bridgewater Associates founder Darion spoke in Singapore on Tuesday, saying that about one-third of US debt financing relies on foreign capital, with a significant portion of this capital coming from Japan and China.
He said, “China does not wish to continue increasing its holdings—there are both geopolitical and economic reasons involved. When there is a relationship between debtors and creditors, while also a rivalry between parties, it is a very complicated situation.”
He also said that Japan has already lent 'a lot of money', and now Japan wants to get back this money.
Before Daliou made the above statement, U.S. Treasury Secretary Scott Bessent tried to assure investors that the combination of economic growth and spending constraints would begin to change the government’s debt trajectory “soon”. Bessent said in a conversation at a stove in Pennsylvania on Monday night that the government would start “to reverse this trend”.
Daliou's remarks indicate that it will take a long time for the U.S. Treasury Secretary to convince some investors. The founder of Bridgewater Fund once again warned that the United States may face a debt crisis within three years, and said that some borrowers have already started to feel the pressure.
This week, bonds continued their months-long decline. The yield on 10-year US Treasury bonds is currently around 5.3%, hovering near the level seen last year in 2002. Data compiled by Bloomberg shows that global bonds have fallen by 3% this year, while US Treasury bonds have declined by 2.8%.
Since the beginning of this year, as investors' concerns about government borrowing and inflation risks have increased, the U.S. Treasury market has been under increasing pressure. Similar concerns have also affected other countries' sovereign bond markets, with France becoming a particularly risky area, as its 10-year government bonds experienced the worst performance in the last quarter since the introduction of the euro.
Daliou stated that France has 'reached a limit in debt accumulation', which has further exacerbated investors' concerns, as the country's strained bond market is facing a critical moment.
Japan and China, as the largest foreign holders of U.S. government bonds, have both been reducing their holdings of U.S. government bonds.
In July this year, Japan's holdings of U.S. government bonds decreased by $12.8 billion, to $1.1 trillion. That month, Japanese authorities took actions to support the Japanese yen. Data recently released by the Japanese Ministry of Finance indicate that Tokyo may have sold some of its foreign securities to fund interventions in the yen exchange rate.
Reports indicate that China’s holdings of U.S. government bonds have decreased from a peak of about $1.3 trillion in 2013 to about $618 billion as of July this year. Currently, China is the third-largest foreign holder of U.S. government bonds. However, market analysts believe that this figure may understate China’s actual holdings, as the U.S. government bonds held by other countries, such as Belgium, may include accounts managed by China. Latest data shows that Belgium holds about $470.7 billion in U.S. government bonds.
Daliou also mentioned that large tech companies investing in artificial intelligence are facing increasing financing pressures. This means that so-called "hyperscalers" are starting to encounter problems.
He said, “In the past, they raised funds through equity financing, but now they need to shift to debt financing.” He warned that there are various factors that could lead to the bursting of the AI bubble. “For example, imposing a wealth tax could have this effect, or it might be time to repay loans.”
