- Ray Dalio sees bitter political fighting ahead between Democrats and Republicans.
- The hedge fund billionaire says the fights could spill over into bond markets.
- He's worried about liquidity and credit risks rattling Treasurys.
Ray Dalio isn't optimistic that the 2026 midterm elections will bring the change the US economy needs.
The billionaire founder of Bridgewater Associates has been warning about a looming US debt crisis with wide-ranging implications unless policymakers take action. Now, he sees fresh fiscal issues hanging over the bond market that could send short-term yields higher as Democrats get ready to take power and spar with Republicans over spending.
"It is likely that the fights over these funding issues will be brutal and that the fighting and uncertainty will probably raise Treasury bill and similar short-term yields because investors will want to avoid payment uncertainty," Dalio wrote on X.
Dalio signaled that he's concerned about Democratic Senator Elizabeth Warren taking over as head of the Senate Banking Committee, predicting it will lead to more fights that could spill over into markets.
He noted that the brief period before the new House and Senate members are sworn in will do much to determine if investors can expect bipartisan gridlock or the sort of fiscal compromise that, as he sees it, would help address government spending in an effective way. Dalio expects this to come to a head in one month.
"That issue will resurface on December 11 when President Trump's temporary funding expires, then again in March 2027 when the Federal debt is projected to hit its limit, and again in the fall of 2027 when the Treasury is projected to run out of funds options," Dalio said.
Dalio also said that he also sees liquidity and credit risks ahead, and investor confidence in Treasurys as a safe haven asset could decline, weighing further on the fiscal outlook.
He pointed to other economies that have been plagued by bond market volatility lately, including France and the UK, noting that he sees one possible solution for the US and its European peers.
"That is to have smart and strong moderates of the left and the right work together against the extremists to deal well with the difficult issues, which will require them to agree and get the government and the people of the country to do the difficult things that will make them strong again," he said.
Dalio made it clear that he doesn't see this as a likely scenario, though he also said he views some newly elected Democrats as similar to their moderate Republican colleagues, which seems to give him some hope for a compromise on fiscal policy.
"If they can keep this single most important thing top of mind, agree that they need it, understand what produces it, and then work on delivering it, everything will be a lot better," he noted.
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