The US Treasury market is supposed to be one of the safest and deepest markets in the world.
But right now, some of the biggest questions around it are not about whether the US can borrow.
They are about who will keep buying that debt, at what price, and for how long.
That is where Ray Dalio’s latest warning gets interesting.
The Bridgewater founder says the US Treasury market could face another major source of pressure if China and Japan pull back further from US government debt.
And this comes at a particularly uncomfortable time. US Treasury yields are already sitting near levels not seen in more than two decades, while the US government continues to run large deficits.
Why China and Japan matter so much
The US does not finance its debt entirely from domestic investors.
A significant portion of Treasury debt is held by foreign investors, with Japan and China among the largest foreign holders.
Dalio’s argument is straightforward.
If two major overseas buyers become less willing to accumulate US debt, the US may have to work harder to attract other buyers.
That could mean higher yields.
And higher yields mean higher borrowing costs for the US government.
It is a cycle investors are already watching closely.
Japan has accumulated a huge amount of US assets over the years. But as Japanese investors and institutions look at opportunities at home, currency considerations and domestic interest rates, the incentive to keep money abroad can change.
China is a different story.
Geopolitical tensions between Washington and Beijing have made the relationship more complicated, and Dalio believes China has less reason to keep increasing its exposure to US debt.
The important point is that neither country needs to completely dump Treasuries for the market to feel the impact.
Even a gradual reduction in demand can matter when the US needs to issue enormous amounts of new debt.
The bigger problem is the US deficit
This is where Dalio’s warning goes beyond China and Japan.
The underlying issue is the amount of debt the US needs to finance.
According to the material, the US relies on foreign capital for roughly one-third of its debt.
At the same time, government borrowing needs remain substantial.
Dalio has warned that the US could face a debt crisis within roughly three years if spending continues to outpace revenue.
His concern is not simply that the US has a lot of debt.
It is that debt service itself can become increasingly expensive.
Think of it like this:
More debt → higher interest payments → more borrowing needs → more debt issuance.
If investors start demanding higher yields to compensate for the perceived risk, that feedback loop becomes even more uncomfortable.
And the bond market is already sending a signal
The Treasury market has been under significant pressure.
The 10-year US Treasury yield has climbed to around 5.3%, levels last seen around 2002.
That matters because Treasury yields influence borrowing costs across the economy.
Higher long-term yields can feed into:
- Mortgage rates
- Corporate borrowing costs
- Auto loans
- Government interest expenses
- Valuations of growth stocks
- The cost of financing new investment
So this is not just a bond-market story.
It can eventually become a stock-market, housing and economic-growth story.
The uncomfortable part: yields are rising even as demand concerns grow
There is another piece of the puzzle that investors should not ignore.
Foreign investors still hold a substantial amount of US Treasury debt, but their share of long-term marketable Treasury debt has fallen significantly over time.
The material notes that foreign investors held around 35% of long-term marketable Treasury debt at the end of 2025, compared with 59% in 2008.
That is a meaningful change.
The US still has plenty of buyers.
But the market cannot rely on foreign official institutions to absorb Treasury issuance to the same extent it once did.
And Washington’s borrowing needs are not getting smaller.
Bill Gross is raising a different red flag
Ray Dalio is not the only veteran investor sounding cautious about bonds.
Bill Gross, the former PIMCO co-founder often known as the “Bond King”, has also warned about the risks of owning longer-duration bonds.
His argument is particularly interesting because he isn’t saying investors should abandon Treasuries completely.
His preference is for short-term Treasury bills, where duration risk is much lower.
The concern is what happens if long-term yields continue rising.
When yields rise, bond prices fall.
The longer the maturity, the greater the sensitivity.
So an investor buying a long-term Treasury today may be locking in a yield that looks attractive on the surface, but could still face meaningful price losses if yields move substantially higher.
Then there is the AI debt problem
There is another factor competing for capital: AI infrastructure spending.
The AI boom has triggered an enormous wave of investment in data centres, chips, power infrastructure and computing capacity.
According to the material, major AI companies are expected to spend hundreds of billions of dollars on AI-related investments this year, with spending potentially exceeding $1 trillion next year.
The concern raised by Gross is simple:
What happens if some of that investment increasingly has to be financed with debt?
The AI investment story depends on those massive data centres eventually generating enough economic returns to justify the capital being deployed.
If they do, the spending could support another major phase of technology growth.
If they don’t, investors could be left questioning whether the market has borrowed too aggressively against future AI revenues.
That creates another competition for capital at a time when the US government itself needs enormous amounts of funding.
But there is another side to the story
Dalio’s warning is serious, but it is not the only view.
Treasury Secretary Scott Bessent has offered a more optimistic assessment, arguing that economic growth and spending restraint can improve the government’s borrowing trajectory.
That is the debate investors need to watch.
Is the US heading toward a debt-driven crisis, or can stronger growth and fiscal discipline stabilise the situation?
The answer will depend on more than what China or Japan do.
It will depend on:
- US fiscal policy
- Inflation
- Economic growth
- Federal Reserve policy
- Treasury issuance
- Foreign demand
- Investor appetite for long-term bonds
What does this mean for investors?
The most important takeaway isn’t “Treasuries are doomed.”
It is that the traditional assumption that US government debt will always have unlimited demand at relatively low yields is being tested.
For investors, that changes the conversation.
If long-term yields remain elevated, investors may need to think more carefully about duration risk.
For equity investors, higher bond yields can also change valuations.
Growth companies are particularly sensitive because much of their valuation is based on future cash flows. When the risk-free rate rises, those future earnings become less valuable in today’s terms.
That means the bond market can put pressure on expensive equity markets even when corporate earnings remain strong.
And this is happening while US technology stocks are still trading near record levels.
The bigger question
Ray Dalio’s warning ultimately comes down to one uncomfortable question:
Who will finance America’s next wave of borrowing?
If China and Japan reduce their appetite for Treasuries, the US will need other investors to step in.
Those investors may demand higher yields.
Higher yields raise borrowing costs.
And higher borrowing costs make America’s debt problem harder to manage.
That does not automatically mean a crisis is around the corner.
But it does mean the Treasury market deserves much more attention than it has been getting.
Because sometimes the biggest warning for the stock market doesn’t come from stocks.
It comes from the bond market first.