Ray Dalio, the billionaire founder of Bridgewater Associates, the world’s largest hedge fund, offered that warning in a Bloomberg webcast on Wednesday, arguing it made no sense to hold bonds when the Federal Reserve and other major central banks are effectively printing money at a rapid clip as part of their effort to backstop a global economy racked by the COVID-19 pandemic.
“If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency and you’re going to receive that, why would you hold that bond?” Dalio asked.
Bond-buying by the Fed is seen contributing to a fall in Treasury yields this year. The yield on the 10-year Treasury note was down 10 basis points at 0.64% on Wednesday. Yields have fallen sharply as the coronavirus pandemic forced the shutdown of most of the U.S. economy and other countries. Stocks plunged from record highs in February into a bear market before stabilizing late last month, to bounce off their March 23 lows.
Stocks fell Wednesday, with the Dow Jones Industrial Average dropping 445.41 points, or 1.9%, to close at 23,504.35 and the S&P 500 shedding 62.7 points, or 2.2%, to finish at 2,783.36.
It’s a point Dalio has made before, including last week in a question-and-answer session on social-media platform Reddit, when he argued that the necessary round of stimulus measures would set the stage for an inflation rebound, eroding the real interest-rate returns on bonds.