The Fed will need to buy bonds as stimulus increases yields, says Dalio

Photographer: David Paul Morris / Bloomberg

The U.S. Federal Reserve will need to buy more bonds as an oversupply of Treasury bonds increases yields, said Ray Dalio, founder of Bridgewater Associates.

The recent fiscal stimulus announced by the Biden government will result in more bond sales to finance spending, aggravating the “bond supply and demand problem, which will put upward pressure on rates,” Dalio said on Saturday at a panel at the China Development Forum , an annual conference organized by the Chinese government. This “will cause the Federal Reserve to buy more, which will put downward pressure on the dollar,” he said.

He said the world is “very overwhelmed in bonds” and they are yielding 1 basis point less in real terms, which is “very bad”.

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

Fed Chairman Jerome Powell said this week that current monetary policy is appropriate and there is no reason to back down against an increase in Treasury yields last month.

– With the help of John Liu and Yujing Liu