Ray Dalio Warns: Investors Just Got "A Taste Of What Tightening Will Be Like"

Zero Hedge | 2/5/2018 | Staff
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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.

Visually:

Something strange is going on in the financial system. And according to The Wall Street Journal, it’s causing some investors to move massive amounts of money out of the banking system.

December - Estimate - Losses - Bonds - Mortgages

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 - Today

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.

Here’s what happened, Dalio explains:

Week - Reports - Growth - Wages - Things

Over the past week or so, we had reports of strong growth and rising wages (good things!), which sent bonds and stocks down (bad for most investors) due to justifiable fears that the Fed...
(Excerpt) Read more at: Zero Hedge
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