Bridgewater Associates founder Ray Dalio is warning that Moody’s recent downgrade of U.S. sovereign credit fails to fully capture the deeper, structural risks facing Treasury investors—particularly the growing reliance on monetary financing to manage federal obligations.
In a statement posted to X, Dalio said that while credit rating agencies such as Moody’s assess the probability of outright default, they overlook what he considers the more pressing danger: the potential erosion of real returns through currency debasement.
“Credit ratings understate credit risks because they only evaluate the risk of non-payment,” Dalio wrote. “They don’t include the greater risk that indebted governments will resort to printing money to meet obligations, thereby causing bondholders to incur losses through diminished purchasing power, even if principal and interest payments are made in full.”
Dalio’s comments come in the wake of Moody’s decision to lower the U.S. credit rating by one notch to Aa1 from Aaa. The agency cited the rising federal budget deficit and escalating interest expenses as key factors behind the move. Moody’s was the last of the three major rating agencies to strip the U.S. of its top-tier credit status, following earlier actions by S&P and Fitch.
Markets reacted quickly to the downgrade, with U.S. equities declining and yields on long-dated Treasurys spiking. The 30-year Treasury bond yield climbed to 4.995%, while the 10-year note rose to 4.521%, reflecting heightened investor sensitivity to fiscal and monetary policy signals.
Dalio emphasized that the downgrade, while notable, doesn’t go far enough in signaling the magnitude of the risks facing holders of U.S. debt. “For those who care about the value of their money,” he said, “the risks embedded in U.S. government debt are more severe than what the rating agencies are currently indicating.”
This concern dovetails with broader discussions among investment professionals about the sustainability of U.S. fiscal policy. With total federal debt now exceeding $34 trillion and annual interest payments nearing $1 trillion, the Treasury’s growing need to issue debt at higher yields poses long-term risks to both public finances and fixed income markets.
Dalio’s remarks serve as a pointed reminder to wealth managers and RIAs to look beyond surface-level credit assessments when evaluating Treasury exposure. While the probability of default remains low, the potential for erosion in real value through inflationary financing is very real—particularly in a regime where monetary and fiscal authorities have shown increasing willingness to intervene aggressively in markets.
The backdrop for Dalio’s warning is an increasingly challenging environment for bond investors. Bridgewater’s own performance has not been immune to these dynamics. According to Reuters, the firm’s assets under management declined by 18% in 2024 to $92 billion, a significant drop from its $150 billion peak in 2021.
This shifting landscape underscores the importance of a nuanced approach to portfolio construction. For RIAs managing client allocations, Dalio’s critique reinforces the need to assess Treasury exposure through multiple lenses: not just creditworthiness, but also the macroeconomic trade-offs being made in Washington.
With the Fed walking a fine line between inflation control and economic stability, and with fiscal authorities continuing to run structural deficits, advisors should remain alert to the long-term implications of persistent monetary accommodation. Traditional safe havens like U.S. Treasurys may still play a role in diversified portfolios, but their real value over time may look markedly different from historical patterns.
As Dalio put it, “the money you’re being paid may still arrive on time—but that doesn’t mean it will retain its worth.” That framing is particularly salient for high-net-worth clients seeking not just income or capital preservation, but protection of real purchasing power across decades.
Looking ahead, the prospect of further credit deterioration or market repricing shouldn’t be discounted. With federal spending continuing at a rapid pace and entitlement obligations mounting, questions about long-term fiscal solvency will likely persist regardless of which party controls Washington in 2025 and beyond.
The takeaway for financial advisors is clear: while Moody’s downgrade may seem incremental, it offers a useful opportunity to revisit fixed income allocations, reevaluate duration exposure, and examine the broader macro signals emanating from policymakers and market participants alike. Inflation hedges, alternative income sources, and global diversification strategies may all warrant closer scrutiny in a policy regime that is increasingly reliant on monetary expansion.
Dalio’s analysis, while critical, offers a pragmatic lens through which RIAs can guide clients in understanding today’s Treasury markets. As he notes, the most material risks often emerge not from default, but from the steady dilution of currency value—an outcome that can silently erode wealth unless explicitly accounted for in portfolio strategy.
