Ray Dalio, founder of the world's largest hedge fund Bridgewater, warned that the US Treasury market is vulnerable to weakening demand from China and Japan — the two largest foreign creditors of the United States — a risk that also highlights a potential pain point in this year's highly volatile US Treasury market.

In an interview on Tuesday, Dalio stated that roughly one-third of US debt relies on foreign capital, a significant portion of which comes from Japan and China. However, China is reluctant to continue increasing its holdings, while Japan previously lent "enormous amounts of money" and now wants to recover those funds.

Dalio's remarks came after US Treasury Secretary Scott Bessent attempted to reassure investors. During a fireside chat event in Pennsylvania on Monday evening local time, Bessent said that relying on economic growth combined with spending controls, the US government's borrowing trajectory will shift "very soon." But Dalio's comments indicate that the US Treasury Secretary still faces a tremendous challenge in convincing some investors.

The Bridgewater founder reiterated his warning that the US could face a debt crisis within three years, noting that some borrowers are already beginning to feel funding pressure.

This week, the bond market continued its months-long decline. The 10-year US Treasury yield is fluctuating around 5.3%, the highest level since 2002. Data shows that the global bond market has fallen 3% this year, while US Treasuries have declined 2.8% over the same period.

This year, the US Treasury market has become highly fragile as investors grow increasingly concerned about government borrowing and inflation risks. Similar worries have spread to sovereign debt markets elsewhere, with France particularly alarming — the country's 10-year government bonds experienced their worst quarter since the euro's inception, making it a focal point of market attention.

In the interview, Dalio pointed out that France has "reached its borrowing limit," a remark that intensified investor concerns that the country's stressed debt market is facing a critical moment of reckoning.

Dalio also addressed the growing funding pressures facing major technology companies investing in artificial intelligence. This means the so-called "hyperscalers" are beginning to encounter problems. "They used to raise funds by issuing shares, but now they need to shift toward borrowing," he said, warning that multiple factors could cause the AI bubble to burst. "Things like imposing wealth taxes or having to repay loans could trigger such an outcome."