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Dalio Wants You To Swap Treasuries For Chinese Debt

1. It seems like everyone loves Chinese bonds now.

China’s bonds have shown incredible stability during the global debt selloff. Yields on 10-year Chinese bonds fell 3 bps over the past month, while the U.S. rates surged 39 bps. Bridgewater’s Ray Dalio noted last week that investors dumping U.S. Treasuries for Chinese bonds is part of a “classic” historical cycle where capital markets of a rising “empire” challenge the existing superpower.

The current environment where central banks and other international investors hold more than a third of their bond portfolio in U.S. Treasuries and just 6% in Chinese bonds is inconsistent with the relative economic positions of the two countries, according to Dalio.

“Their overweighted position in U.S. bonds is largely because of the ‘exorbitant privilege’ the U.S. has had being the world’s leading reserve currency, which has allowed the U.S. to overborrow for decades,” Dalio wrote on LinkedIn. “As part of this cycle, there is the emergence of the currency and capital markets of the rising and competing empire. Consistent with this classic cycle there is now a shifting from U.S. bonds to Chinese bonds going on.” Read more…..

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