Ray Dalio Warns: Investors Just Got “A Taste Of What Tightening Will Be Like”
by Tyler Durden
ZeroHedge.com
Mon, 02/05/2018
Echoing his recent comments on how investors’ exposure to low interest rates is extreme and warned that a rise in yields could spark the biggest crisis for fixed-income investors in almost 40 years.
“A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,” Bridgewater Associates founder Dalio said in a Bloomberg TV interview in Davos on Wednesday. We’re in a bear market, he said.
However, as we explained last December, this is a low-ball estimate which “understates the potential losses” as it “does not include high-yield bonds, fixed-rate mortgages, and fixed-income derivatives”, which would suggest that the real number is likely more than double the estimated when taking into account all duration products.
As a reminder, Goldman calculated the entire duration universe at $40 trillion as of the summer of 2016, resulting in $2.4 trillion in losses for a 1% move. By now the number is far, far greater.
Bridgewater Founder Ray Dalio warns today, Via LinkedIn.com, what we are seeing is typical late-cycle behavior, though more exaggerated because the durations of investment assets (i.e., their sensitivities to interest rate changes) are greater.
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