Billionaire investor Ray Dalio has warned that the selloff in U.S. Treasuries is far from over, as demand from some of the world's largest traditional buyers weakens amid a surge in government and corporate debt issuance.

The founder of Bridgewater Associates said in a post on LinkedIn on Tuesday that the United States is entering a phase in which expanding bond supply drives yields higher and debt levels climb further. He argued that this cycle is unlikely to end until rising interest rates put enough pressure on the economy and financial markets to force supply and demand back into balance.

"The path to a bear market in Treasuries could be long," Dalio wrote. He has long warned that a U.S. debt crisis is approaching and has urged investors to sell bonds and buy gold. His bearish stance contrasts with some investors and strategists at institutions such as BlackRock, who turned bullish after the 10-year U.S. Treasury yield surged this month to its highest level in nearly a quarter of a century.

This year has been a difficult one for the bond market. A Bloomberg index tracking U.S. Treasuries has fallen about 2.4%, with government bonds on track for their first annual decline since 2022.

Wartime levels

Dalio estimates that, measured as the sum of borrowing and debt-servicing costs relative to government revenue, the U.S. debt burden has already reached its highest level since World War II and will deteriorate further in the coming years.

Dalio said the U.S. government is expected to refinance roughly $10 trillion of maturing debt this year while adding $2.1 trillion in new borrowing. He warned that given the sheer scale of maturities, even a small decline in investors' willingness to reinvest maturing funds could create a huge financing gap.

What is worrying is that demand to buy bonds may weaken among some of the largest foreign creditors of the United States, including Japan. Citing Japan as an example, Dalio wrote that Japanese policymakers have incentives to encourage domestic investors to reduce their holdings of $1.1 trillion in U.S. Treasuries and repatriate the funds to support the yen and the Japanese bond market. He expects rising Japanese government bond yields to further drive this shift.

The U.S. Treasury also faces increasingly fierce competition for capital from companies, which are issuing more bonds and shares to finance artificial intelligence infrastructure construction. Dalio noted that there are signs investors are beginning to demand greater concessions from issuers before absorbing this supply, and he views the corporate credit market as "the canary in the coal mine."

"For a long time, expected changes in the supply of and demand for new debt have meant that shorting U.S. Treasuries is easier than going long Treasuries, and that is still the case now," Dalio wrote.