Ray Dalio warns that stocks' cushion against rising bond yields is eroding as earnings growth slows relative to climbing interest rates, and he expects deteriorating free cash flows despite continued earnings improvements. The billionaire investor cautioned that a sustained bond bear market driven by government deficits and AI investment spending could eventually pressure equities as financial conditions tighten.
Options traders are betting on a bottom in the Treasury bond sell-off, with heavy call buying in the TLT ETF following a strong 10-year note auction. One aggressive buyer spent over $250,000 on calls betting bonds will recover losses from September's sharp decline, signaling traders believe further yield increases carry limited upside.
U.S. Treasury yields rose sharply as Federal Reserve Governor Christopher Waller indicated more interest rate hikes are needed to combat persistent inflation, though not necessarily at consecutive meetings. The 10-year yield climbed to 5.328%, near its highest since 2002, as investors awaited the Treasury's $22 billion 30-year bond auction.