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Three market experts cited concerns that rising U.S. debt will push up interest rates.
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Ray Dalio and Bill Gross both point out that supply-demand imbalances will continue to drive up borrowing costs.
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The U.S. debt supply will only grow as a recession widens the federal deficit, Jeffrey Gundlach added.
America’s debt bubble is deflating, and major market experts are waving red flags with more red on the road and a recession looming.
The warnings come as federal deficits have exploded in recent years, pushing the U.S. debt to record highs. The Treasury Department has already been auctioned 1 trillion dollars in bonds Just in this quarter. Meanwhile, borrowing costs have risen over the past year and a half as the Federal Reserve has embarked on a tight tightening campaign.
Last week, Wall Street giants Ray Dalio, Bill Gross and Jeffrey Gundlach were spotted with the following distractions:
Ray Dalio
The founder of Bridgewater Associates says he doesn’t invest in bonds and instead. Estimated money is good, for now.
Speaking on Milken Institute Asia Conference In Singapore, Dalio said a bloated fiscal deficit is forcing the Treasury Department to continue issuing bonds.
But the increase in the supply of US hot debt is not the only issue. Investors will sell their bonds if they aren’t getting a fair enough interest rate, he warned.
“Supply demand [imbalance] It’s not just the amount of new bonds. ‘Have you chosen to sell bonds?’ That is the issue. “I personally believe that long-term bonds are not a good investment,” Dalio said at Thursday’s event.
Although interest rate gains help drive demand for bonds, they also make debt servicing more expensive.
“When interest rates go up, the central bank has to make a choice: let them go up and have the consequences, or print money and buy those bonds? And that will have the consequences of inflation.” he said. “So we’re seeing that dynamic happen now.”
Bill Gross
The “Bond King” who made Pimco’s fixed income success had the same concerns about the debt market.
In an interview with Bloomberg Unusual lots The podcast, looked at that A third of the outstanding debt of the US It will mature in less than a year. To ensure that the Treasury can provide this service, it will need to attract more buyers.
Once again, this depends on increasing interest rates.
Gross, the federal Numerical strictness The campaign would remove the central bank as a bond buyer, thus exacerbating the supply and demand imbalance. And a lack of demand means Treasury prices are low, he warned.
“It’s dangerous at some point,” he said. “I’m not saying get out. I’m saying assets have to go up or the economy won’t do well.”
Jeffrey Gundlak
Similarly “”Bond King” Gundlach expects a flood of Treasurys, warning that the coming recession will widen the federal deficit.
“The most confusing thing for people is that once we get into the recession, bond yields start to rise because of excessive money printing and monetary reaction,” he said. Fox Business.
Although many economists are warm to the prospect of a soft landing, Gundlach says a recession is likely within six to eight months, as the pandemic continues to drain consumer savings.
If this happens amid the Fed’s tighter policy, the economy could spiral into deflation, forcing the government into debt.
“I think the Fed has in the back of their minds that, when the next recession comes, the amount of debt is going to be so big that it’s going to be a very bad idea to have interest rates above 5%.” he said.
Read the original article on Business Insider
