Ray Dalio flags China and Japan pulling back from U.S. debt - report

Billionaire investor Ray Dalio warned that the U.S. Treasury market could face weaker demand from China and Japan, as the two major foreign creditors seek to reduce their exposure to U.S. debt.

The Bridgewater Associates founder said the U.S. relies on foreign capital for about a third of its debt, with a significant portion coming from Japan and China, during a Bloomberg Television interview in Singapore on Tuesday.

“The Chinese don’t want to continue to accumulate — there are geopolitical issues as well as economic issues,” he said. “When you have a debtor-creditor relationship and you have an adversary relationship, that’s a very difficult dynamic.” He added that Japan has lent “a lot of money” that it now wants to take back.

Japan, the largest foreign holder of U.S. Treasuries, and China have already been reducing their holdings. Japan’s Treasury holdings fell by $12.8B in July to $1.1T, while China’s official holdings have declined to about $618B from a peak of $1.3T in 2013, according to the Bloomberg report.

Dalio repeated his warning that the U.S. could face a debt crisis within three years. His comments come as a months-long selloff in government bonds has pushed borrowing costs higher, with the 10-year Treasury yield around 5.3%, near levels last seen in 2002.

The warning comes as Treasury Secretary Scott Bessent seeks to reassure investors that economic growth and spending restraints would “very quickly” change the trajectory of U.S. government borrowing. Bessent said Monday that the government would start “bending the curve.”

Against that backdrop, Dalio also highlighted mounting financing needs among large technology companies pouring money into AI. Hyperscalers are increasingly turning to debt to fund their investments, he said.

“Before, they would raise equity and now they need to come to debt,” Dalio said, warning that several factors could cause the AI bubble to burst. “Something like a wealth tax would have that effect, or having to pay back loans.”