The Fed will have to buy bonds as the stimulus increases yields, according to Dalio

Photographer: David Paul Morris / Bloomberg

The U.S. Federal Reserve will have to buy better ones as an oversupply of Treasury increases yields, said Ray Dalio, founder of Bridgewater Associates.

The recent fiscal stimulus announced by the Biden administration will lead to more bond sales to fund spending, worsening the “bond supply-demand problem, which will put upward pressure on rates,” Dalio said Saturday in a panel of the China Development Forum, an annual conference organized by the Chinese government. This “will cause the Federal Reserve to have to buy more, which will exhibit downward pressure on the dollar,” he said.

He said the world is “very overweight in bonds” and that it produces minus 1 basis point in real terms, which is “very bad”.

“And not only will there not be enough demand, but we may start to see the sale of these bonds,” he said. “This situation is bearish for the dollar.”

Fed Chairman Jerome Powell said this week that current monetary policy is appropriate and there is no reason to back down from the rise in Treasury yields over the past month.

– With the assistance of John Liu and Yujing Liu