Private credit's bad loans hit a nine-year high

Archived reading, published Sat, 22 Aug 2026 18:21:30 UTC (4 days ago). This is not the current state of the meter.

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CRASH-O-METER

Cracking

how close are we

+1 since the last reading

Fragility90

how much tinder is stacked up — moves slowly

Ignition41

how close a spark is — moves fast

Crash Lab watches the machinery under the current boom: the debt paying for AI data centres, private credit, the leverage that has moved out of banks into places nobody has to mark, the bond market and the dollar.

Every four hours it reads the day’s reporting from 19 sources and rewrites this page.

Why it moved: Up one, to 66. Fragility takes a point because the Q2 BDC data is a genuinely worse read on private-credit asset quality than we were carrying — median non-accruals at the twenty largest listed BDCs went from 2.0% to 2.8% of cost in a single quarter and Fitch's private-credit default rate hit a record 6.1% — deterioration that happened between March and June and that we had not counted. Ignition is unchanged at 41 because the market data is again the same Friday closes: VIX 15.1, high-yield spreads 275bp, the S&P 1.6% off its record.

Reporting from 20 Aug to 22 Aug

Crash points

Eight places it could go, scored 0–10. Tap one for the explainer.

What’s moving the needle

What changed in the last few hours, and what each one says about the plumbing.

Crypto and TradFi contagion22 Augmedium

Strategy sold stock, bought no bitcoin, kept the cash

The digital-asset treasury trade only works while these companies are net buyers; the biggest one just spent a week not buying while its stock rose 28%.

In the week to 16 August, Strategy — the original digital-asset treasury company — sold about $333.7m of its own shares, made no bitcoin purchases and no sales, and ended the week with a $4.8bn dollar reserve. The mechanism these companies run on is simple. Issue equity at a premium to the value of the coins you hold, use the proceeds to buy more coins, and the coins per share rises even though the share count did. It works only while the premium exists. When a treasury company sells stock and does not buy the asset, one of two things is happening: either the premium no longer justifies buying, or the cash is needed for something else — servicing the preferred and convertible obligations that sit above the common shareholders in the capital structure. The filing does not say which. What makes it odd is the price action. MSTR rose 28% in five days and finished at its recent high. Bitcoin is up 19.7% over the same stretch to around $77,200. The ether treasury companies did the same thing: BitMine up 26% in five days and 44% in twenty, SharpLink up 26% and 36%, both at their period highs. Coinbase is up 25.7% in a week. So the whole complex re-rated hard while the largest and longest-running member of it chose to hold dollars. We do not know Strategy's premium to net asset value from the material we have, and without it we cannot say whether this is discipline or necessity. But a treasury company accumulating fiat is, on its face, the flywheel running in reverse.

Household credit22 Aughigh

Two consumers, one dataset

Prime card losses look priced; subprime auto is at a record and is where the collateral fraud of the last two years also showed up.

The New York Fed's second-quarter household debt report is a study in averages hiding a split. Total household debt fell $13bn to $18.8tn. Credit card balances rose $21bn to $1.26tn, and the share of card balances 90 or more days delinquent reached 12.8%, against 7.6% in mid-2022. Auto loans 90+ days late hit 5.49% of balances, just below the 5.60% Q1 peak and the highest since 2010. Two measures are being quoted interchangeably and should not be. The 12.8% is a stock — the proportion of all card balances currently sitting in serious delinquency. The 6.97% also reported is a flow — the annualised rate at which balances are newly transitioning into 90+ days late. The stock is high because bad balances sit there for quarters before being charged off; the flow is what tells you about the next few months. On the flow, the monthly issuer data is calmer than the headline. Capital One reported a 4.12% annualised net charge-off rate on domestic cards for July and 3.48% of balances in 30+ day delinquency. Charge-offs are realised losses; 30-day delinquency is the pipeline feeding them. A pipeline running below the current loss rate means losses are more likely to flatten than accelerate. Which is why the lenders' shares look the way they do: Capital One up 7.8% in twenty days, Synchrony up 9.5%, Credit Acceptance up 4.6%, Oportun up 33%. The exception is subprime auto. Fitch's 60+ day subprime delinquency index printed 6.13% for July, the highest July reading in a series going back to 1994. That is not the same borrower as the Capital One card book, and it is not stabilising.

Bond market dysfunction22 Aughigh

The yields didn't fall. The dollar did.

Fiscal stress that cannot express itself in yields expresses itself in the currency, and that is a slower, wider channel than a bond selloff.

The Treasury's unscheduled announcement on 19 August that it would at least double buybacks of long-dated debt, from $2bn to $4bn per operation between 9 September and 4 November, bought about a day of relief. The 30-year fell to 5.1765% and then rose 5.4bp to 5.247% the next session. By Friday it was around 5.24–5.27%, roughly where it started. Bessent then said the size could go above $4bn per issue. What did move was the currency. The dollar hit a three-month low against the euro, which traded as high as $1.1711. "Bessent's efforts to suppress US yields haven't done much for US yields, but it's undermined the dollar," Marc Chandler of Bannockburn told Reuters. "The market is pushing back." That is the mechanism worth understanding. A buyback does not retire debt; it swaps long bonds for short bills. The government's interest bill becomes more sensitive to the front end, and the duration the market has to absorb falls temporarily. If investors believe the motive is price management rather than housekeeping, they do not stop demanding compensation — they demand it somewhere else. The somewhere else is the exchange rate. The FT's markets column makes the second point: predictability is the entire product in a $32tn market, and support measures get read as an admission that something has broken. This is the third unscheduled Treasury intervention in three weeks, following yen purchases and a facility explicitly designed to avoid selling Treasuries. Gross federal debt crossed $40tn on 18 August. Rate volatility, meanwhile, sits near a twenty-day low. The long end is repricing in an orderly way. It is repricing all the same.

Private credit and BDCs21 Augmedium

Non-accruals jumped 40% in a quarter. Nobody sold.

Non-accruals are the earliest hard number in private credit that the manager cannot mark to its own opinion, and they are now rising faster than the equity of the lenders implies.

The median share of loans on non-accrual at the twenty largest listed US business development companies rose to 2.8% of cost in the second quarter, up from 2.0% at the end of March — the highest level since roughly 2017, on Solve data cited by the FT. Fitch's US private credit default rate reached 6.1% for the twelve months to July, up from 6.0% in June, a record for the series. Non-accrual is a specific thing. It means the lender has stopped booking interest income on a loan, either because the borrower has stopped paying or because the lender no longer expects it to. It is not a write-off; it is the step before one. And it is measured here against cost, not fair value, so a loan already marked down still counts at what was originally lent. A 0.8 percentage-point move in three months is fast for that measure. The dispersion matters as much as the median. FS KKR reported 7.1% of its credit portfolio as problematic. Investcorp's small BDC saw NAV per share fall from $3.65 to $3.44, down 5.7% in a quarter, with five investments on non-accrual. Goldman Sachs BDC went the other way: non-accruals down from 3.2% to 2.9% of fair value, NAV off less than 1%. The shares do not care yet. Ares Capital closed the week 1.3% off its recent high and up 6% in twenty days; Blackstone Secured Lending is 1.0% off its high; Prospect Capital, the perennial stress case, is up 11% in twenty days and sits 0.6% below its high. Only Blue Owl's BDC (-3.7% in five days) and FS KKR (-3.5%) sold off. That is defensible arithmetic rather than complacency: on portfolios yielding around 10%, 2.8% of loans paying nothing still leaves the dividend covered. The loss arrives later, in NAV.

The AI capex bubble21 Augmedium

The AI build is now bidding against the Treasury

When a data-centre bond prices at junk yields and a 23-year amortisation lands in a bond fund, the duration risk of the AI build has been moved to savers who will not mark it for years.

Two numbers from the same week. The US sold $25bn of 30-year bonds at 5.216%, the highest auction yield since 2001. And QTS Realty sold a $3.9bn investment-grade bond to fund a Microsoft-linked data centre in Georgia at what Bloomberg described as junk-like yields. Those facts are connected, and the Treasury Secretary said so himself: Bessent told CNBC his buyback expansion was partly about supporting a thinly traded market that has to "compete with a lot of corporate issuance at higher yields, including for artificial intelligence infrastructure." Hyperscaler debt issuance reached $220bn in 2026 by 10 August on BNP Paribas data; one estimate puts global AI-related issuance at $489bn by mid-year, with five companies accounting for nearly 40%. The structures are where the interesting risk sits. Meta's Hyperion vehicle carries $27bn of debt rated A+, priced at 6.58%, amortising to 2049, with PIMCO reported to have taken about $18bn of it. That is a bond fund lending for twenty-three years against a building whose economic value depends on chips that depreciate in a fraction of that time and on a lease that is the entire credit. Meta's follow-up El Paso deal, around $12.5bn, priced wider than the comparable 2025 transaction. The cost of AI money is rising even as the volume does. The equity of the same complex is not going along with it. Nebius upsized a convertible to $5bn, one of the largest on record, and its shares fell 21% in five days. CoreWeave is down 16.6% over the week, Applied Digital 12.8%, Core Scientific 11.6%, Talen 13.4%. Debt markets are still clearing these deals. Equity markets are marking down the people who have to keep doing them.

Signs of the times

Stuff you wouldn’t have believed was possible until 2026.

The chatbot blames the governor

A Texas campaign ad released this week shows someone asking a chatbot why their electric bill is going up; the bot answers that it is because of data centres approved by Governor Abbott, who halted approvals of roughly 1,800 of them this month. The technology is now being used to campaign against the buildings that run it.

aipoliticspower

21 AugThe Wall Street Journal

A $2.25bn bond on Jane Street's lease

Zenith Arc completed a $2.25bn bond deal to fund a data centre leased to Jane Street Group. A proprietary trading firm is now a long-dated real-estate credit that bond investors are underwriting.

datacentrescredit

21 AugBloomberg, via research sweep

$5bn raised, 21% wiped off

Nebius upsized its convertible bond sale to $5bn, one of the largest on record, split $3bn due 2030 and $2bn due 2034. Its shares fell 21% over the following five days — the debt market and the equity market pricing the same buildout in opposite directions.

aiconverts

21 AugReuters, via research sweep

Tether unplugged Uruguay

Tether abandoned two bitcoin mining sites in Uruguay after a dispute over how much power it would get, at an estimated cost of around $120m, a Reuters review found. "This plug-and-play infrastructure is very easy to do — literally pulling the plug and then move it to somewhere else," one academic said; the same portability is what data-centre bondholders are lending against elsewhere.

cryptopowerstranded assets

21 AugReuters, via Channel NewsAsia

The rumour mill

What the crash-callers are saying, checked against real reporting.

Confirmed

“Central banks bought a record 289 tonnes of gold in Q2 2026, more than five times the revised Q1 figure of 57 tonnes, with Poland adding 51 tonnes and China 33.”

The World Gold Council's Gold Demand Trends report gives 289t of net official purchases, a record second quarter and up about 62% year on year. It is the cleanest number behind gold's 15% twenty-day rise.

Claimed by Coin Bureau

Confirmed

“Central banks now collectively hold more gold than US Treasuries.”

The ECB's June review puts gold at 27% of official reserves at end-2025 against 22% for US Treasuries — the first crossover since 1996. This is a reserve-composition fact, not a statement about the dollar's transactional role.

Claimed by ITM Trading (Daniela Cambone)

Confirmed

“US spot bitcoin ETFs had their worst half-year on record in H1 2026, with $5.4bn of net outflows including $4.5bn in June.”

Confirmed across multiple data trackers, including a 13-session outflow streak from mid-May. Worth holding alongside bitcoin's 20% five-day rally: this rally is not being driven by the ETF bid that drove the last one.

Claimed by Coin Bureau

Partly true

“Austin home prices have fallen by over 30% from their peak.”

Overstated. Realtor.com data puts Austin asking prices down close to 25% from the 2022 peak — the steepest of any major US metro — and local median sold prices are 18–21% below peak. Bad enough without the extra ten points.

Claimed by Thoughtful Money (Adam Taggart)

Earlier developments

Dispatches from previous readings. The same argument, no longer the news.

The AI capex bubble21 Aughigh

The index is fine. Its financiers are not.

The AI buildout depends on continuous refinancing by companies whose equity is the junior tranche of every future deal, and that equity is being marked down while the index is not.

Over the last five sessions, Nebius fell 21.1%, CoreWeave 16.6%, Talen Energy 13.4%, Applied Digital 12.8%, Core Scientific 11.6% and Vistra 8.1%. Over the same five sessions the S&P 500 fell 1.4% and now sits 1.6% below its record. High-yield spreads are 275bp. Investment grade is 82bp. Nothing in the credit market registers what is happening to this specific group of companies. The grouping is not random. These are the firms that build and power AI capacity without a hyperscaler balance sheet behind them, and they fund themselves with project debt, converts and offtake contracts. Nebius upsized a convertible to $5bn on 20 August — $3bn due 2030, $2bn due 2034, and one of the largest on record (Reuters, via sweep). A convert is equity sold at a distance. When the stock drops a fifth in a week, the distance gets longer, and the next tranche costs more. The power names are a different mechanism with the same shape. Talen and Vistra are priced off the assumption that data-centre demand arrives on schedule at contracted prices. Texas has halted approvals of roughly 1,800 data centres over power and water strain, and a Republican governor is being attacked from the left on electricity bills (WSJ). The reporting says demand is overwhelming: $220bn of hyperscaler bond issuance in 2026, QTS placing $3.9bn at junk-like yields for a Microsoft-linked site, Meta's El Paso paper printing wider than last year's comparable. The prices say the equity funding channel for everyone who is not a hyperscaler is closing first. Where reporting and prices disagree, we would watch the prices.

Bond market dysfunction22 Aughigh

Three surprises in three weeks

Three unscheduled interventions in three weeks have moved the currency instead of the yield, which is the expensive way for a fiscal problem to resolve.

On Wednesday, without warning, the US Treasury announced it would at least double the size of its buybacks of longer-dated debt, from $2bn to $4bn per operation, running from 9 September to 4 November. On Thursday Scott Bessent said the number could go higher still. On Friday the 30-year yield closed at 5.27%, the highest in nearly two decades, and the dollar hit a three-month low against the euro. Buybacks are ordinary housekeeping. Doing them unscheduled is not. As the FT puts it, predictability is the whole game in a $32tn market, and support measures get read as an admission that something has broken (FT). The mechanism matters. A buyback does not reduce the debt; it swaps the maturity profile, retiring long bonds and funding that with bills. It removes duration from the market without removing a dollar of borrowing. If the fiscal path is unchanged — and the debt crossed $40tn this week, with the $25bn 30-year auction clearing at 5.216%, the highest for that tenor since 2001 — then capping the yield does not remove the adjustment. It relocates it. "Bessent's efforts to suppress US yields haven't done much for US yields, but it's undermined the dollar," Marc Chandler of Bannockburn told Reuters. "The market is pushing back." The third surprise is the one fewest people noticed: three weeks ago Bessent bought yen, and said future interventions would use an unusual facility designed specifically to avoid selling Treasuries. Bond investors read that as an attempt to stop Japan funding yen support out of its stock of US debt. Warsh speaks at Jackson Hole on Friday.

Private credit and BDCs22 Aughigh

Selling the Lakers to recapitalise an insurer

The retirement savings funding private credit sit behind a disclosure regime, not a capital regime, and one participant has just been shown to have driven straight through it.

Federal prosecutors are investigating Mark Walter, and the investigation has established that two insurance companies he controlled provided more than $20bn in previously undisclosed financing to other parts of his business empire. Walter has agreed to sell the Los Angeles Lakers and put his Chelsea stake up for sale, in a rush to clean up those insurers' balance sheets (FT). The structure is worth understanding because it is not unusual. Annuity liabilities are long-dated and cannot run, which makes them the ideal funding for illiquid private credit — that is the whole insight behind private capital's move into insurance, and Guggenheim reached $367bn under management on the back of it. The check on the arrangement is not capital; it is disclosure. Affiliated transactions have to be visible, and the assets have to be valued by somebody with no stake in the answer. Which is why prosecutors also subpoenaed the ratings firm that graded some of the bonds. The FT's sourcing is blunt about the read-across. "What makes Mark Walter unique is that he failed to disclose a tremendous amount of affiliated transactions," says Andrew Granato of the University of Texas. "But other private capital firms are engaged in essentially the same business model." KKR, Apollo and Brookfield all own insurers that lend into their own orbits. The distinction between fraud and business model is the whole question, and this window does not resolve it. What the window does show is a forced seller: trophy assets going to market on a schedule set by regulators rather than by the owner. Apollo is off 5.3% in five days and 7.2% from its recent high; the S&P is off 1.6%.

Hidden leverage and shadow banking22 Auglow

Banks sold €905bn of risk. Some came back.

This is the risk-migration thesis in its purest form: a market that grew eighteenfold in a decade, moving credit from the regulated balance sheet to the unregulated one — sometimes on the regulated balance sheet's money.

European and global banks sold exposure to €378bn of credit through significant risk transfer deals in 2025, according to figures attributed to the International Association of Credit Portfolio Managers. There are now more than 800 SRT transactions outstanding across 62 entities, with a live credit balance of €905bn. A decade ago the figure was a little over €50bn (IACPM, via web sweep). An SRT works like this. A bank holds a portfolio of loans and buys credit protection on the first-loss piece from a fund — usually a private credit or hedge fund — which posts cash against it. The bank keeps the loans and the client relationship, hands over the first losses, and gets regulatory capital relief for the reduction in risk. Everyone gains something real. The loans stay on the balance sheet where a supervisor can see them. The complication is the one the ECB has flagged: banks sometimes finance the funds that buy the protection. The sweep quotes ECB supervisory communications to the effect that where a bank lends to the investor taking the transferred risk, the risk that appears to have left the balance sheet may in substance be partly retained, with lower overall capital coverage against it. The circle is not perfectly closed — the fund's own equity absorbs losses first — but the bank's exposure is no longer zero, and the capital held against it is. What we do not have is a number for how much of the €905bn is bank-financed, or a US figure at all. This is a single secondary source citing a trade body, not a primary release, and we would treat the €905bn as an order of magnitude rather than a measurement.

Crypto and TradFi contagion21 Augmedium

A hundred times leverage on a stock you cannot buy

$1.4tn of leveraged exposure to real-world assets now sits in a market that produces no position data anyone can supervise.

Global trading volume in perpetual futures hit a record $86.2tn in 2025, up 47% on the year, according to CoinGecko. Perps tied to real-world assets — stocks, commodities, anything not a token — went from $23.6bn in the first half of 2025 to $1.4tn in the first half of 2026. That is roughly sixtyfold in twelve months (Nikkei). A perpetual future has no expiry date. A periodic funding payment between longs and shorts keeps it tethered to the spot price, and the only constraint on size is the margin the venue demands. Kalshi, which is US-regulated, caps bitcoin perps at six times. Bybit allows a hundred. What that combination now buys you is exposure to assets you have no legal route to. Before humanoid-robot maker Unitree listed in Shanghai this week, its pre-IPO perpetual future traded near $100 on several platforms, more than four times the listing price. One contract, xyz.UNITREE, did over $105m of volume on Hyperliquid within 24 hours of the IPO. The shares then opened up 629%. "The perpetual market called the mania before it happened," a Pepperstone strategist told Nikkei. The point for this site is not the mania. It is that this is leveraged equity exposure with no prime broker, no 13F, no short-interest report and no margin data anybody aggregates. Gross positioning in these instruments is invisible until a liquidation cascade makes it visible. We have spent this month tracing leverage out of banks and into private funds and money-market plumbing. This is the same migration, one step further out: the leverage has left the reporting perimeter entirely.

Household credit22 Augmedium

Household debt shrank. The card book did not.

The aggregate household numbers are being used to argue the consumer is healthy, and they cannot bear that weight — the stress is real but concentrated in the two smallest books.

Two things in the New York Fed's Q2 data point in opposite directions, and the gap between them is the story. Total US household debt fell $13bn on the quarter to $18.8tn. Aggregate delinquency eased to 4.7% of balances from 4.8%. On those numbers the American household is fine. Inside them: credit card balances rose $21bn to $1.26tn, and the share of card balances 90 or more days delinquent reached 12.8%, against 7.6% in the second quarter of 2022 (NY Fed data, via sweep). Auto balances 90+ days late stand at 5.49%, just below the 5.60% Q1 peak and the highest since 2010. Fitch's July index put subprime auto 60+ day delinquency at 6.13%, the highest July reading in a series running back to 1994. The reason the aggregate can improve while the card book deteriorates is composition. Mortgages are most of household debt, and most of them were written by high-score borrowers at coupons that will never be refinanced. That block is inert and it dominates the average. The revolving and auto books are where the marginal borrower actually lives, and they are 8% and 6% of the total. A household crisis confined to those lines will not show up in the headline number until it is large. The lenders are not behaving as if it is large. Capital One is up 7.8% over twenty days, Synchrony 9.5%, Affirm 9.6%. The market's view is that a 12.8% serious delinquency rate is fully priced into the APR, and on the evidence of the last two years it has been right. One caution: the 12.8% figure reaches us through commentary on the NY Fed release rather than the release itself, and it is a share of balances, not of accounts.

Hidden leverage and shadow banking22 Augmedium

The 2007 pipe has been repointed at equities

If money funds stop rolling conduit paper, equity leverage disappears in days and the selling lands on the most crowded stocks.

A JPMorgan note picked up by the FT this morning makes an observation that ought to be better known: the growth in asset-backed commercial paper issuance coincides with, and may be directly connected to, growth in equity repo volumes. The plumbing. ABCP is very short-dated debt, mostly issued daily, bought overwhelmingly by money-market funds looking to earn a few extra basis points on cash. It is issued by conduits — vehicles sponsored by, but not consolidated onto, a bank. JPMorgan's Teresa Ho, Pankaj Vohra and Molly Herckis write that certain ABCP structures, including independent sponsor programmes, "can provide banks with off-balance-sheet solutions/optimization of funding and potentially favorable accounting treatment by using a conduit to intermediate transactions with a counterparty" (FT). Strip out the language and the chain is: your cash sits in a money fund; the fund buys overnight paper from a conduit; the conduit finances equity collateral; a hedge fund — or a retail brokerage client — holds a leveraged stock position at the far end. This is the structure that funded subprime mortgages into 2007 and seized in the 2020 dash for cash. What is different is the collateral. Equities can be sold in a morning, which sounds reassuring until you notice that everyone deleveraging at once is what makes a momentum unwind. Goldman's global momentum index had its worst systematic long-short day in more than two years last Wednesday; Morgan Stanley said it was the first time in five years its pure momentum index fell more than 4% while the S&P rose. The note does not say how much of the ABCP growth is equity-linked. Without that number we cannot size the exposure, and we have not raised fragility for it. But this is exactly the migration Crash Lab tracks: leverage financed off balance sheet, by the most run-prone liability in the system, and counted nowhere in bank capital.

The dollar, gold and reserve status22 Augmedium

Reserve managers say they are leaving. Gold agrees.

The marginal foreign official buyer of Treasuries is the thing that has quietly absorbed US deficits for thirty years, and it says it is stepping back.

An OMFIF survey published this week found that, for the first time, more central banks plan to reduce dollar exposure over the next decade than to increase it. A separate 2026 World Gold Council survey found 74% of reserve managers expect the dollar's share of global reserves to fall over five years, 89% expect central-bank gold holdings to rise over the next year, and 45% intend to add gold themselves. The crossover has already happened on one measure. Per the European Central Bank's June review, gold made up 27% of total official reserves at end-2025 against 22% for US Treasuries — the first time gold has led since 1996. Why this is a plumbing story and not a talking point. A reserve manager holding Treasuries is lending to the US government; the coupon comes back, the position rolls, and the bid is automatic. A reserve manager holding gold is holding a bar that pays nothing and finances nobody. Every percentage point that shifts is a percentage point of deficit that has to find a private buyer at a price. That is the same buyer Scott Bessent is now competing with himself, having doubled long-end buybacks to at least $4bn per operation from 9 September. Prices are consistent. Gold closed at $4,680, up 3.6% in a day and 15% in twenty, at a record. Silver is up 19% in twenty days. The dollar index is 98.84, down 2.6% over the month, with the euro at its highest since 14 May. The caution: these are surveys of intent, and intent is cheap. What is not a survey is the 30-year Treasury at 5.33% last week, its highest since 2007, and the record price of the asset that competes with it.

Private credit and BDCs22 Aughigh

Non-accruals at a decade high, BDCs at their highs

The market is pricing BDC credit as a rounding error while the one unmanipulable credit metric has gone up 40% in a quarter.

Two numbers from the past week. The median non-accrual ratio across the twenty largest listed BDCs rose from 2.0% of cost at the end of March to 2.8% in the second quarter — the highest since the aftermath of the 2017 oil bust, on FT analysis of Solve data. And Fitch's US private credit default rate reached 6.1% for the twelve months to July, up from 6.0% in June, a record for the series. A non-accrual is a loan where the borrower has stopped paying interest, or the lender no longer expects them to. It is the least gameable number a BDC publishes, because unlike a mark it does not depend on a valuation committee. Now the prices. Ares Capital, the largest listed BDC, sits 1.3% below its recent high and is up 6% in twenty days. Blackstone Secured Lending is 1.0% off. Prospect Capital — the perennial stress case — is 0.6% off its high and up 11% in a month. Blue Owl's BDC and FS KKR are the softer ones, down 3.7% and 3.5% over five days. The two claims can both be true. A 2.8% non-accrual rate with normal senior-secured recoveries is a low single-digit hit to net asset value, and the dividend still covers. Equity holders are being paid roughly 10% to wait, and they are waiting. What would break the reconciliation is the accrual side. Payment-in-kind income across BDC portfolios rose from about 6% in 2022 to about 10% by early 2026, per Boston Fed work cited in our sweep. PIK is interest recognised as income and added to the loan balance rather than received in cash. A rising PIK share and a rising non-accrual share are the same borrower, six months apart.

The AI capex bubble21 Augmedium

AI debt is getting more expensive one deal at a time

Credit indices will be the last place the AI financing cycle turns up, because the risk is being written in vehicles no index tracks.

The spread indices say nothing is happening: investment grade at 82bp, high yield at 275bp, both roughly where they were a month ago. The individual deals say something else. Meta's $12.5bn El Paso data-centre bond priced at higher yields than the comparable Hyperion deal, which came at 6.58% on an A+ rating with PIMCO taking about $18bn of the $27bn. QTS Realty sold a $3.9bn high-grade bond to fund a Microsoft-linked centre in Georgia at what Bloomberg called junk-like yields. Nebius upsized a convertible to $5bn — $3bn due 2030, $2bn due 2034 — one of the largest converts on record. Hyperscaler bond issuance hit $220bn in 2026 as of 10 August, on BNP Paribas data. And Broadcom is in talks for $70–80bn, roughly $45bn senior and $35bn junior, with Blackstone and Apollo, issued through a special-purpose vehicle, to buy chips for Anthropic and others. The structure is now standard: an SPV, an offtake contract with a creditworthy tenant, sometimes a vendor guarantee, and a rating that reflects the contract rather than the technology. It is a good structure if the tenant pays for twenty years. It is a real-estate loan if the tenant does not. The equity market is discriminating in the same direction. Over five days: Nebius −21%, CoreWeave −17%, Applied Digital −13%, Talen −13%, Vistra −8%, while Microsoft, Alphabet and Oracle are within a few percent of their highs. Money is being priced project by project, not sector-wide. That is healthier than the alternative. It also means the sector's cost of capital is rising well before any credit index shows it.

Household credit22 Augmedium

Subprime auto is at records. Subprime lenders are near highs.

Household credit stress is real but concentrated at the bottom, and the market is right that lenders can price it — until the funding side balks.

The New York Fed's Q2 household debt report puts 90-plus-day delinquency on auto balances at 5.49%, just below the 5.60% first-quarter peak and the highest since 2010. Fitch's July index shows subprime 60-plus-day delinquencies at 6.13%, the highest July reading in a series running back to 1994. Credit card balances rose $21bn to $1.26tn. One caveat we cannot resolve: summaries of the same Fed release put card 90-plus-day delinquency at 12.8% of balances, while others report 6.97%. Those are not the same measure and the sweeps do not say which. We are not going to build an argument on a number that appears twice at half the size. What is clear is the divergence. Aggregate household delinquency actually fell, to 4.7% from 4.8%. Deep subprime auto is at a record. Those two facts describe two different populations, and the second one is small enough not to move the average. Which is roughly what the equities say. Over twenty days: Capital One +7.8%, Synchrony +9.5%, Credit Acceptance +4.6%, Oportun +33%. Consumer lenders are not bets on borrowers being fine. They are bets on the spread between what they charge and what they pay, minus losses they have already provisioned for. Charge-offs at record levels are survivable if funding is cheap and APRs are high, and both currently hold. The channel that matters is not the delinquency rate but the securitisation bid, which is where these loans go. Tricolor showed how that fails — not gradually, through defaults, but suddenly, when the collateral turns out not to exist.

Crypto and TradFi contagion22 Augmedium

The bitcoin company is accumulating dollars

When the flagship treasury company chooses cash over the coin, the mechanism that makes these vehicles work is being paused by the people who run it.

Between 10 and 16 August, Strategy sold about $333.7m of its own stock, bought no bitcoin, sold no bitcoin, and lifted its US dollar reserve to $4.8bn. The digital asset treasury model has one engine. Issue equity at a premium to the value of the coins you already hold, use the cash to buy more coins, and the coins-per-share number goes up. It works precisely as long as the stock trades above the net asset value of the holdings. Selling stock and holding the proceeds in dollars is the same engine with the second stroke missing. There are innocent readings. A $4.8bn dollar reserve services preferred dividends and convertible obligations without touching the bitcoin, which is prudent liability management and something the older version of this company was criticised for not doing. There is a less innocent reading, which is that management does not think the coin is the best use of the dollar right now. The disclosure does not say which. What makes it interesting is the price action around it. MSTR is up 28% in five days and sits at its recent high. Bitcoin is at $76,774, up 19% over five days and down 2% today. Coinbase is up 26% and at its high; BitMine and SharpLink, both ether treasury companies, are up 26% each. The whole complex ripped in the same week the dollar hit a three-month low and gold hit a record. That is the tell. This rally is not a bet on blockchain adoption. It is the same trade as the gold bid, in a different costume — and it is being expressed through vehicles that carry leverage gold does not.

Fed, Treasury and policy22 Aughigh

The two arms of policy are pulling opposite ways

When the Treasury tries to hold down a yield the Fed may be about to push up, the adjustment happens in the exchange rate — which is exactly what gold at a record and the dollar at a three-month low are telling you.

On 19 August the Treasury said it would at least double its buybacks of long-dated Treasuries, from $2bn to at least $4bn per operation, running 9 September to 4 November and targeting the 10–20 and 20–30 year sectors. The next day Scott Bessent told CNBC it could be more than $4bn per issue (Gulf Times). This followed a $25bn 30-year auction that cleared at 5.216%, the highest stop for that tenor since 2001, and a 30-year yield that touched 5.33% on 18 August, the highest since 2007. It did not work for long. The 30-year rallied on the announcement and then rose again, to 5.247%. Charlie McElligott at Nomura called the plan a "band-aid on a bullet hole"; Jim Caron at Morgan Stanley Investment Management put it more flatly: "The Treasury simply can't control long-term yields" (FT). The plumbing matters. A buyback does not retire debt. It swaps an old, illiquid long bond for cash raised elsewhere — in practice, bills. So the operation shortens the average maturity of a $40tn debt stock and moves duration risk from private balance sheets onto the rollover calendar. It also announces that the issuer cares about a price it cannot set. Meanwhile the July FOMC minutes, released the same day, showed three dissents in favour of a quarter-point hike and "many" participants saying one would be needed if inflation did not fall. So the fiscal authority is buying duration while the monetary authority discusses tightening. The pressure has to come out somewhere, and this week it came out in the currency: the dollar hit a three-month low against the euro. "Bessent's efforts to suppress U.S. yields haven't done much for U.S. yields, but it's undermined the dollar," said Marc Chandler of Bannockburn (Livemint/Reuters). Kevin Warsh speaks at Jackson Hole on Friday.

Private credit and BDCs22 Augmedium

The queue to leave is fourteen per cent long

The redemption queue is the liability side of the private-credit boom, and it is the one number that says the marginal buyer of these loans is now a seller.

The top ten non-traded business development companies received redemption requests averaging 13% of assets in the first quarter of 2026 and 14% in the second, and many managers have activated gates. Some funds are reported to have received withdrawal requests as high as 40% of net asset value against typical quarterly gates of 5% (summary of FT and Boston Fed data). Payment-in-kind income has risen from about 6% of BDC portfolios in 2022 to roughly 10% now. Here is what a gate actually does. A non-traded BDC offers to buy back 5% of its shares a quarter, at stated NAV, out of a portfolio of loans that cannot be sold in a quarter. When 14% asks to leave, everyone is pro-rated: you get roughly a third of what you requested and rejoin the back of the queue. Nobody is forced to sell anything. That is the design, and it works — this is why private credit does not produce a Bear Stearns moment. The cost shows up elsewhere. A fund that is gating is not raising, and a fund that is not raising is not lending. Private credit's bid for new loans is fed by inflows; when the inflow reverses, the marginal borrower refinances at a wider spread or does not refinance at all. That is a slow squeeze on borrowers, not a fast one on funds. The listed vehicles show none of this. Ares Capital is 1.3% off its recent high, Blackstone Secured Lending 1.0%, Prospect 0.6%. One summary in our window claimed listed BDCs trade "around 60 cents on the dollar"; that is not consistent with the prices we can see, and we do not credit it. The stress is in the funds that do not have a price.

Household credit21 Aughigh

Somebody is finally checking whether the cars exist

In securitisation the collateral is a representation, not an inspection — and the market has just started paying to find out which representations were true.

Demand for collateral-verification services at the consultancy Guidehouse is up 80% since subprime auto lender Tricolor Holdings collapsed. Inquiries at the loan-servicing firm Vervent are up 50%. Setpoint Technologies and CBIZ report the same. Pagaya, which acts as a network for three dozen lenders, has made signing up with a verification service mandatory for its auto-lending partners (Bloomberg). US prosecutors charged Tricolor's founder in December with conspiring to defraud lenders, allegedly including by pledging the same collateral twice. This is worth understanding because it describes how the whole asset-backed channel works. A warehouse lender advances cash against a schedule of loans; the borrower certifies that the cars exist, that the liens are perfected, and that nobody else has a claim on them. The lender samples, at most. Verification costs money, the spread is thin, and in a rising market the incentive to check is close to zero. So the certification is, in practice, the collateral. Two readings, both true. The bullish one: the system is installing a control it was missing, which lowers the probability of the next Tricolor. The bearish one: an 80% jump in demand tells you the control was absent across the channel, not at one bad firm — and Bloomberg notes First Brands and mortgage lender Market Financial Solutions ran into related trouble. The backdrop is not comfortable. Fitch's subprime 60-day delinquency index printed 6.13% in July, the highest July reading in a series going back to 1994, and the New York Fed has 5.49% of auto balances 90-plus days late. Fraud tends to be discovered when the underlying loans stop paying, not before.

The dollar, gold and reserve status20 Aughigh

Japanese savers are quietly leaving the yen

The marginal buyer of long-duration paper for three decades was a Japanese institution with nothing better to do with the money; it now has something better to do with the money.

Foreign-currency deposits at Japanese banks grew by ¥3.98tn ($25.1bn) year on year in the April–June quarter, the largest increase since Japan fully deregulated such accounts in 1998. Total balances averaged ¥26.1tn ($165bn), up 18%. Retail non-yen deposits rose 8% to ¥6.7tn. Sony Bank's foreign-currency deposits reached ¥800bn just 15 months after passing ¥700bn (Nikkei). The quarterly increase is small against a $32tn Treasury market. It is larger than Japan's entire fiscal 2025 trade deficit of ¥1.7tn. And the behaviour has flipped: Japanese retail investors historically bought foreign currency when the yen was strong and it looked cheap. They are now buying it at a 39-year low past 163, after a joint US–Japan intervention failed to hold. "Holding just yen is a risk," one Tokyo saver told Nikkei. Why this matters outside Japan. Japan is the world's largest creditor nation, and the home bias of its savers and insurers has quietly financed foreign bond markets for thirty years. Two forces are now pulling at that. Domestic savers are moving out of yen, which weakens the yen further and makes the move self-reinforcing. And the 10-year JGB is at 2.93%, its highest since 1996 — for the first time in a generation, the domestic bond is a real alternative for the institutions that own the duration. Those two flows point in opposite directions for the exchange rate. They point the same way for the cost of financing long-dated debt everywhere else. The 30-year Treasury at 2007 yields and the 10-year JGB at 1996 yields are the same story seen from two ends.

Crypto and TradFi contagion20 Augmedium

A bank haircut is now a bitcoin position

Contagion needs a channel, and regulated bank lending against volatile collateral is the channel that did not exist in the last crypto drawdown.

JPMorgan is opening bitcoin-backed lending to institutional clients, taking BTC and ETH as collateral for dollar loans held with third-party custodians. Reported haircuts are 30% to 50%: a $1m bitcoin position supports roughly $500,000 to $700,000 of borrowing (crypto sweep). In the same window, KPMG completed the first full audit of Tether's accounts with an unqualified opinion and reserves exceeding liabilities by $6.8bn, and World Liberty Trust received preliminary conditional OCC approval to operate as a national trust bank issuing USD1, the fourth-largest stablecoin at about $4bn. The haircut is the whole design. It is the bank's estimate of how far the collateral can fall before it can liquidate and still be whole. Against an asset that rose 19.9% in five days, 30–50% is not obviously generous or obviously reckless — it is a guess about liquidation speed in a market that has never been tested with bank credit behind it. The risk is not the loan losses. It is the flow. A margin call on a crypto-collateralised loan is met by selling the coin, which lowers the price, which triggers the next call. Bank credit converts a price move into forced selling in a way that spot ownership does not. The volumes today are small. The pipe is new, and it is being laid by the largest bank in the United States. The prices say the market has already decided. Bitcoin is $77,313, up 21.8% in twenty days. Coinbase is up 25.7% in five days and at its period high. Strategy is up 28.1%, BitMine 26.3%, SharpLink 26.4% — every digital-asset treasury company we track is at its high, and all of them are outrunning the coins they hold.

The AI capex bubble21 Augmedium

The market is selling the periphery, not the centre

The equity market is discriminating between AI capex funded by cash flow and AI capex funded by project debt — which is the distinction that will matter if demand disappoints.

Over the last five sessions: Nebius −21.1%, CoreWeave −16.6%, Talen Energy −13.4%, Applied Digital −12.8%, Core Scientific −11.6%, Vistra −8.1%. Over the same five sessions: Nvidia −4.6%, Oracle −2.6%, Microsoft −2.2%, Alphabet −0.3%. Stretch to twenty days and the split is starker — Core Scientific −21.8% and Vistra −16.6% against Oracle +27.4% and Microsoft +26.8%. This is not a repudiation of AI. It is a repricing of the parts of AI that are funded with secured project debt. A hyperscaler builds from operating cash flow and an A-rated bond. A neocloud, a converted bitcoin miner or a merchant power company builds against contracted revenue, and the debt assumes three things: the permit arrives, the interconnection arrives, and the tenant keeps paying for twenty years. Texas halting approval of roughly 1,800 data centres put a political variable into the first of those (WSJ). The debt market is charging for it. QTS Realty sold a $3.9bn high-grade bond for a Microsoft-linked Georgia campus at what Bloomberg described as junk-like yields. Meta's $12.5bn El Paso financing priced wider than its earlier Hyperion deal — reported as $27bn of vehicle debt, rated A+, priced at 6.58%, amortising to 2049, with PIMCO taking around $18bn (sweep). Hyperscaler bond issuance is $220bn this year on BNP's count. Hold that last structure in mind. A 23-year amortising, single-tenant, A+ rated exposure to one data centre, most of it sitting in a bond manager's portfolios. That is the migration Crash Lab keeps describing, in one deal: the risk is real, it is rated investment grade, and it is not on a bank's balance sheet.

What would change our mind

The specific, observable things that would move the number - in either direction.

A large listed BDC — Ares Capital, Blue Owl or Blackstone Secured Lending — cutting its dividend or reporting a NAV per share decline of more than 2% in a quarter; that would turn the non-accrual data from an income problem into a capital one.

Would move the number

A data-centre SPV bond pricing above roughly 7.5%, or a deal pulled from the market, which would mark the point at which AI capex stops being fundable at investment-grade cost.

Would move the number

A 30-year Treasury auction tailing badly despite the doubled buybacks, or the buyback operations themselves attracting poor participation — evidence the intervention is not just ineffective but counterproductive.

Would move the number

High-yield spreads above 350bp or investment-grade above 100bp from 275bp and 82bp today; that is the number that would move ignition rather than fragility.

Would move the number