Dalio: U.S. Treasury Risks Worse Than Moody’s Warning

• Ray Dalio warned that Moody’s downgrade of the U.S. credit rating to Aa1 from Aaa understates risks to U.S. Treasurys, as it ignores the potential for the government to print money, devaluing bondholders’ returns.
• U.S. stocks fell on Monday as Treasury yields rose sharply, with the 30-year bond yield hitting an intraday high of 5.0370% and the 10-year note yield reaching 4.5660%, reflecting market concerns over the downgrade.
• Moody’s cited the growing federal budget deficit and soaring interest payments as reasons for the downgrade, marking the last major credit agency to lower the U.S. from its top rating.

The recent downgrade of the U.S. sovereign credit rating by Moody’s to Aa1 from Aaa, announced on Friday, has intensified scrutiny of the nation’s fiscal health, with billionaire investor Ray Dalio warning that the risks to U.S. Treasurys are significantly understated. Dalio, founder of Bridgewater Associates, emphasized on Monday via a post on social media platform X that credit agencies like Moody’s fail to account for the federal government’s potential to print money to service its debt, a move that could erode the real value of bondholders’ returns through currency devaluation. This concern amplifies the implications of Moody’s action, which cited the escalating federal budget deficit and rising interest payments as key drivers of the downgrade, marking the final step among the three major credit agencies to strip the U.S. of its top-tier rating.

Re the U.S. debt downgrade, you should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don't include the greater risk that the countries in debt will print money to pay their debts thus causing holders…

— Ray Dalio (@RayDalio) May 19, 2025

Market reactions were swift, with U.S. stocks declining on Monday as Treasury yields surged, the 30-year bond reaching 5.0370% and the 10-year note climbing to 4.5660%. These movements reflect investor unease about the sustainability of U.S. debt, particularly as interest payments strain federal finances. Dalio’s critique highlights a structural vulnerability: while credit ratings assess the risk of outright default, they overlook the inflationary impact of monetizing debt, which could diminish the purchasing power of bond payments. This perspective aligns with broader economic debates about the long-term consequences of expansive fiscal and monetary policies, especially as the U.S. faces persistent deficits.

Historically, the U.S. has relied on its status as the issuer of the world’s reserve currency to manage debt levels, but Dalio’s warning underscores the limits of this approach in an era of rising yields and inflationary pressures. The Federal Reserve’s past quantitative easing programs, which involved large-scale bond purchases, have already fueled concerns about money supply growth, and further debt monetization could exacerbate these risks. Moody’s downgrade, while focused on fiscal metrics, indirectly signals these challenges, as higher interest payments consume a growing share of the federal budget, crowding out other expenditures.

Dalio’s remarks carry weight given Bridgewater’s track record in navigating macroeconomic trends, and his focus on currency devaluation as a “greater risk” than default reframes the conversation around U.S. debt sustainability. For investors, the rising Treasury yields signal both opportunity and caution, as higher returns come with increased exposure to inflation and policy uncertainty. The market’s Monday sell-off reflects this tension, with equities reacting to the prospect of tighter financial conditions. As the U.S. navigates this complex fiscal landscape, Dalio’s warning serves as a reminder that the true cost of debt may lie beyond the metrics captured by credit ratings, posing challenges for policymakers and investors alike.

WallStreetPit does not provide investment advice. All rights reserved.

• Bulenox: Get 83% OFF ... Use Discount Code: JJT3A
• Risk Our Money Not Yours | Get 50% to 90% OFF ... Use Discount Code: MMBVBKSM