Billionaire investor Ray Dalio has warned that the US Treasury market remains vulnerable to weaker demand from China and Japan, two of its largest foreign creditors. Speaking on Bloomberg Television in Singapore on October 6, the Bridgewater Associates founder said the US relies on foreign capital for about a third of its debt and argued that geopolitical tensions with China and Japan’s efforts to reclaim capital could create a difficult funding environment.
Dalio reiterated his warning that the US could face a debt crisis within three years as borrowing pressures increase. Ten-year Treasury yields were around 5.3%, near levels last seen in 2002, while Treasuries have lost 2.8% this year and global bonds are down about 3%. Japan’s Treasury holdings fell by $12.8 billion in July to $1.1 trillion, while China’s official holdings have declined from a $1.3 trillion peak in 2013 to about $618 billion.
Billionaire Ray Dalio warned that Treasuries are vulnerable to a pullback of demand from China and Japan, two of the US’s largest foreign creditors.
It highlights a potential pain point for a market that has endured wild swings this year. More from @haslindatv’s exclusive interview with Dalio: https://t.co/pVHgYSffvi
— Bloomberg (@business) October 6, 2026
Dalio also flagged growing financing pressures among major technology companies funding artificial intelligence infrastructure, saying hyperscalers are increasingly turning to debt after relying heavily on equity financing. He warned that higher borrowing costs or demands to repay loans could expose vulnerabilities in the AI investment boom. His comments contrast with Treasury Secretary Scott Bessent’s view that economic growth and spending restraints will soon begin improving the trajectory of US government borrowing.
Investors question who will finance rising government debt
Ilker Kulaksiz argued that the pullback from US Treasuries is already visible, with Japan’s holdings falling to $1.104 trillion in July from about $1.2 trillion at the start of the year, while China’s holdings have dropped to $618 billion, their lowest level since 2008. He linked Japan’s selling to efforts to support the yen and noted that rising Japanese rates are making domestic returns more attractive to Japanese investors bringing money home.
Kulaksiz said fewer buyers could force the US to borrow at higher interest rates, while higher Treasury yields could pressure stock valuations, raise costs for indebted companies and make capital flows to emerging markets, including Turkey, more difficult. He noted that the Nasdaq is still reaching records because corporate earnings remain strong, but warned that this balance could break if rates continue rising.
I’m sure debt sustainability has absolutely nothing to do with any of this…
France is paying its highest yield premium over Germany in 15 years. Germany is fighting over tax hikes to contain its widening budget gap. And Ray Dalio warns that China and Japan may pull back from US Treasuries.
Of course, the global economy still has an enormous amount of wealth. But you can have all the assets in the world; if the other side of the balance sheet increasingly consists of debt concentrated with governments, debt sustainability becomes a bigger and bigger problem.
Ultimately, that raises a very simple question: who is willing to finance all that debt?
The question of debt sustainability fundamentally changes the role of bonds in an investment portfolio.
The old assumption that government bonds provide stability, diversification and protection when equities fall can no longer be taken for granted. More debt means more volatility, a greater risk that bonds and equities fall at the same time, and, if keeping that debt sustainable comes with structurally higher inflation, as I expect, less protection of purchasing power.
This fundamentally changes the role of bonds in an investment portfolio.
In my book The Great Rebalancing, I explain why aging populations and endless debt accumulation require a fundamental rethink of how we invest and protect our wealth, and why scarce assets should play a much bigger role.
Want to read it? You can find it here:
https://t.co/JhFaxawYbwIn a world full of debt, invest in scarcity.
— jeroen blokland (@jsblokland) October 6, 2026
Jeroen Blokland questioned whether debt sustainability was becoming a larger factor in global markets, pointing to France’s higher yield premium over Germany and Germany’s debate over tax increases. He argued that growing government debt could undermine the traditional role of bonds as portfolio protection, creating greater volatility and increasing the possibility that stocks and bonds decline together, while structurally higher inflation could weaken bonds’ protection of purchasing power.
Dalio had also raised concerns about the dollar’s credibility in 2025, when he argued that mounting US debt, inflation and political interference in monetary policy were weakening the foundations of the global financial system. He also pointed to the Federal Reserve’s independence as an important factor in maintaining confidence in the dollar.
What happens if China and Japan stop buying US treasuries?
A sustained reduction in foreign demand would leave the Treasury market more dependent on other investors, including US households, institutions and private financial markets. Foreign governments’ share of foreign Treasury demand has already fallen to just above 40% in early 2026, compared with nearly 100% in the 1970s, showing how the buyer base has changed over time.
The impact would extend beyond government financing. Treasury yields serve as a benchmark for borrowing across the economy, so higher yields can feed into mortgages, corporate debt and other credit markets. The 10-year Treasury yield reached 5.34% in October, while the US debt burden has surpassed $40 trillion, increasing the sensitivity of financing costs to movements in the bond market.
There are also signs that Japan’s changing investment environment could redirect capital away from overseas markets. Japanese investors sold a net ¥3 trillion ($18.7 billion) of overseas debt through August 22, the largest year-to-date outflow since 2022, as domestic bond yields moved above 3% and currency-hedging costs made foreign assets less attractive. If that shift persists, US borrowers could face a more competitive market for global savings.
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