Fed Will Need to Buy Bonds as Stimulus Boosts Yields, Dalio Says

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

The recent fiscal stimulus announced by the Biden administration will result in more bond sales to finance the spending, worsening the “supply-demand problem for the bonds, which will exert upward pressure on rates,” Dalio said Saturday on a panel at the China Development Forum, an annual conference hosted by the Chinese government. That will “prompt the Federal Reserve to have to buy more, which will exhibit downward pressure on the dollar,” he said.

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

“And not only might there be not enough demand, but it’s possible that we start to see the selling of those bonds,” he said. “That situation is bearish for the dollar.”

Fed Chair Jerome Powell said this week that current monetary policy is appropriate and there’s no reason to push back against a surge in Treasury yields over the past month.

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