Ray Dalio Warns of US Debt Death Spiral as $2.1T in New Treasury Supply Hits Market

Ray Dalio warned that the United States is caught in a debt death spiral, citing an excess supply of government debt. The investor expects the federal government to issue $2.1 trillion in net new marketable debt in 2026. Countries go broke, he said, when debt supply outpaces demand and debt-service costs rise enough to force painful cuts elsewhere. Both conditions are now present in the US, according to Dalio. More issuance pushes yields higher, lifting interest expenses and deficits and requiring even more borrowing. Credit-market participants call that compounding cycle a death spiral. The Treasury is struggling to contain rising yields despite expanding bond buybacks. In September it tripled long-term buyback operations to a maximum of $6 billion to support market liquidity. The 10-year Treasury yield still climbed to multiyear highs. The Kobeissi Letter said the bond market was resisting Treasury efforts and warned of adverse consequences for consumers and borrowers if yields stayed above 5%. Corporate debt and equity issuance are also surging, driven largely by artificial intelligence capital expenditures. Dalio expects combined government and corporate issuance to create excess supply of financial assets, including debt and equity, relative to demand. The economy is in a midcycle phase in which interest rates have not yet caused asset prices to collapse. He anticipates that persistent supply imbalances will eventually weaken the economy and weigh on equity markets. At the latest check, the 10-year Treasury yielded 5.20%, the 2-year 4.78% and the 30-year 5.55%. The iShares 20+ Year Treasury Bond ETF (TLT) closed Tuesday up 0.41% at $78.37. TLT tracks the ICE U.S. Treasury 20+ Year Bond Index, which measures public US Treasury securities with remaining maturities greater than 20 years. TLT was down 10.80% year-to-date, fell 3.09% over the past month and was 13.47% lower over the year. The S&P 500 advanced 13.81% year-to-date, the Nasdaq Composite rose 17.08% and the Dow Jones gained 6.80%. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500, closed Tuesday down 0.012% at $778.01. The Invesco QQQ Trust ETF (QQQ), which tracks the Nasdaq-100, closed down 0.33% at $743.57. The State Street SPDR Dow Jones Industrial Average ETF Trust (DIA), which tracks the Dow, closed up 0.33% at $516.21.