By Carolina Mandl

GREENWICH, Connecticut Ray Dalio, founder of hedge fund Bridgewater Associates, said on Tuesday that the relationship between China and the United States is "on the brink of red lines," although he does not see a war on the way.

Speaking at the Greenwich Economic Forum, Dalio said that there are irreconcilable differences between the world's two biggest economies, citing as examples the independence of Taiwan, the battle for chips and geopolitics.

"U.S.-China relationship relations are in a number of areas on the brink of red lines," he told the audience of investors, adding that a war is unlikely.

"Neither country wants to go to war. Everybody's afraid of what that war would be physically and devastating economically and politically."

"These issues will remain and probably (be) intensified over the next five to 10 years."

A China enthusiast and investor, Dalio has helped Bridgewater build a relevant hedge fund in the world's second-biggest economy. Its Chinese funds delivered strong returns this year, buoyed by a rally in the mainland bond market even amid tough macroeconomic conditions.

Relations between Washington and Beijing have been under increasing strain over spying allegations, human rights, China's industrial policies and U.S. export bans on advanced technologies.

The billionaire investor said 10-year Treasury yields could reach 5%, as inflation is likely to stay above the Federal Reserve target of 2%, with prices rising more "in the vicinity of 3.5%."

He estimates rates should be 1.5 percentage points above inflation to balance supply and demand.

On Tuesday, benchmark 10-year notes reached 4.766%, the highest level since 2007.

(Reporting by Carolina Mandl in Greenwich, Connecticut; Editing by William Maclean and Matthew Lewis)