Four in five private software loans marked down this year

Archived reading, published Sun, 06 Sep 2026 13:39:06 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

Fragility91

how much tinder is stacked up — moves slowly

Ignition37

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 17 sources and rewrites this page.

Status: Held at 64. It is Sunday afternoon and the prices in front of us are the same September 4 close we read at the last three runs, so ignition stays at 37. The VIX, the market's gauge of how much turbulence traders expect over the next month, sits at 14.53 (under 20 is calm; it passed 80 in March 2020). The S&P 500 is 1.0% off its high. The debt of companies too shaky to be considered safe pays 2.65 percentage points more than the government, the government itself pays 4.78% to borrow for ten years, and bitcoin is flat overnight at $79,800. Fragility holds at 91, and nothing this week earned a change. Reuters' finding that 81% of the software loans held by funds that lend to mid-sized private companies have been written down, and that 3.4% have stopped paying, is a sector-wide count of the same loan books whose individual names we tallied this week: the pile did not grow, we measured it better. Pimco's warning about the two structures that move loan risk from banks to insurers is commentary on things already in our stock. The Dutch and French gold moves happened between March and August. And nothing was unwound. The one decline in borrowed money in the window, the stock-market borrowing tracked by FINRA falling from $1.5tn to $1.42tn in July, is six-week-old data we treat as already in the number.

Reporting from 3 Sep to 6 Sep

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.

Private credit and BDCs6 Sepmedium

Four in five software loans are worth less than the books said

The individual loans we have watched lose value one at a time are now a number for the whole sector, and four in five software loans have started moving the way Loparex's did.

Reuters went through the filings of ten American funds that borrow money, lend it to mid-sized private companies, and pass the interest to shareholders, and found that four in five of their software loans are now carried at less than they cost (81%, against 40% of loans to every other kind of business). Software was the industry these lenders liked best. Loans where the borrower has stopped paying, or is unlikely to pay in full, have risen to about one in thirty from one in forty at the start of the year (3.4% of cost at June 30, from 2.5% at the end of 2025), and the share carried at less than 80 cents for every dollar lent has quadrupled from where it sat for three years (about 4% now, around 1% from 2023 to 2025). Every one of those figures is the lenders' own admission that the loans are worth less than the books said, and until this week we had only seen it one company at a time. A wider cut of 44 such funds puts the value they place on everything they hold at $92.88bn, against $95.19bn it cost them: a discount of $2.31bn, or about 2.4%. That number is small, and it is built to be small. These funds decide for themselves what their own loans are worth, and until a borrower actually misses a payment there is little that forces them to admit a loss. That is why the 81% figure is the one to hold on to. A software loan that has been written down is still, in most cases, carried at 80 or 90 cents on the dollar. Loparex was carried at 88 cents in December and at 5 cents last week. The sector data says the queue behind it is long and concentrated in one industry. Software was the collateral private lenders liked best: subscription income that arrives every month, little need to spend on buildings or equipment, and easy to borrow against. The reporting does not say why it has turned, and we will not guess. Reuters also found 88 companies where two funds valued the same loan more than 10 cents on the dollar apart, which tells you these valuations are opinions. And KBRA, a firm that grades how likely borrowers are to pay you back, found the typical rate of stopped-paying loans among the funds set up with an end date jumped in a single quarter (its median rose to 2.75% from 1.81%). The market is not pricing a queue. Shares in two of the big listed lenders of this kind closed within a whisker of their highs (Ares Capital 0.8% off, Blackstone Secured Lending 1.1%). The firms that manage the funds are softer (Blackstone down 4.4% on the week and 8.8% off its high,

The AI capex bubble6 Sepmedium

Whose money is actually in the chips?

When the owners put in almost nothing and the thing pledged to the lender wears out, the lenders funding the AI buildout are the ones betting that a three-year-old chip will still cover their loan.

The chief executive of IREN, one of the companies filling data centers with Nvidia's Blackwell Ultra chips, said this week that its customers' advance payments can cover about half the cost of those chips and that lenders can fund most of the rest. Read that twice. A company is buying some of the most sought-after hardware in the world mostly with its customer's money and its lender's money, and what its own shareholders own is whatever is left over. Funds run by Blue Owl arranged $2.4bn for IREN's British Columbia campus, split between a $1.2bn loan and $1.2bn of bonds, both of which get paid first and have the assets pledged against them. Chinese-language coverage picked up by our sweep put the interest rate at a fixed 9% and said the money covers about 90% of the related chip spending. We have not seen the term sheet. The same stack is everywhere. Nebius raised its debt sale to $5bn. Nscale closed up to $3.05bn of loans, secured on its sites in Texas and North Carolina, and Bloomberg reports it wants $3.5bn more before listing its shares: $1.5bn of bonds that can turn into shares and about $2bn from Nvidia, the vendor whose chips the money buys. Lambda's $926m loan sits in a separate company set up to hold the servers off the parent's books, pays an interest rate that floats 3 percentage points above the market's benchmark overnight rate, comes due in December 2030, and is secured on the servers and the cash they earn. Big Tech's AI-related debt has passed $350bn by one estimate. The mechanism to hold on to is this: a chip is collateral that loses value on a schedule nobody agrees on. If the customer pays half up front and the lender funds most of the rest, the party carrying the risk of what the chips are worth at the end is whoever holds the bond when the contract ends and the hardware is three years old. The debt is secured. The security wears out. The market's answer this week was to buy the shareholders' slivers. IREN rose 26% in five days and sits 0.6% off its high; Nebius rose 7.5% on Friday, CoreWeave 5.6%. Oracle, which has raised $43bn of debt against $55.7bn of building, closed at its high. Prices say the question of what used chips are worth has been answered. The filings say it has not yet been asked. This is fragility, and the slow kind: nobody is going to be forced to sell a chip this month. But every one of these loans rests on a price for used hardware that nobody has had to name, and the more of them there are, the more it matters when

The dollar, gold and reserve status6 Sephigh

Central banks are moving the gold, not selling it

Where a central bank keeps its gold is a vote on how far it trusts the United States to hand the bars back, and two European ones cast that vote this year without moving the price.

The Dutch central bank moved about 86 metric tons of gold out of vaults in New York and Ottawa and into London between March and August, citing "increasing geopolitical unrest" and a wish to be better prepared for a severe crisis. Central banks do rearrange where they keep their gold. Saying in public that the reason is getting ready for a severe crisis is not the routine part. New York used to hold nearly a third of Dutch gold and now holds less than a fifth (31.3% to 18.5%); London's share has nearly doubled (18.1% to 32.1%). France has shifted 129 metric tons out of New York, saying the bars did not meet its purity standard. India's figures show 77% of its central bank's gold is now held at home. And the FT reports that Hong Kong imported almost 100 metric tons of Russian gold in the first seven months of the year, a record and nearly three times last year's pace, as the city tries out its own system for settling gold trades. None of this moves the price. Gold closed Friday at $4,477, down 0.3%, about 5% off its high. It is not about price. Location is a statement about which legal system you trust to hand the bar back when you need it. A central bank keeps gold in New York because that is where it can be sold or swapped for dollars fastest in a crisis. Moving it to London, or home, trades that speed for distance from American law. Two European central banks made that trade in the same year that Australia's central bank confirmed it was cutting its dollar holdings and Norway's sovereign fund proposed cutting $80bn of US government bonds. One item in our sweep, from a single source, says gold reached 27% of central banks' official reserves at the end of 2025 against 22% for US government bonds. We cannot confirm it and quote it only as a claim. The IMF, which lends to countries in trouble and keeps the official count of what currencies central banks hold, has the dollar's share of those reserves rising to 57.1% in the first quarter. That cuts the other way, and it is a reminder that this is a drift, not a run. What it adds to the machine is this. The market for US government debt has leaned on foreign official buyers who held the bonds and stored their gold in New York because both were convenient. The convenience is being repriced, one vault at a time. It moves the odds only slowly, and it moved them months ago: these transfers happened between March and August and we count them as already in the pile. But the pile is what a bad auction of government de

Fed, Treasury and policy6 Sepmedium

Three dates: September 9, 15 and 18

Three policy decisions in nine days land on the exact seam where a mistake would show first: Japanese money coming home from US government bonds just as the cost of America's longest-term borrowing rises.

Between September 9 and September 18, three governments make decisions that all touch the same nerve. On September 9 the Treasury Department, which borrows the money the US government spends, doubles the amount of its own long-dated debt it buys back to keep that part of the market trading, to at least $4bn per operation on bonds with between ten and thirty years left to run, running through November 4, and insists this is "not monetary policy". On September 15 the Federal Reserve, America's central bank, meets with traders pricing a rate rise as more likely than not, after Warsh's speech at Jackson Hole, the central bank's annual August gathering, and a jobs report showing 162,000 new jobs. On September 18 the Bank of Japan meets, with Japan paying more than 3% to borrow for ten years for the first time since 1996 and its five-year and forty-year borrowing costs at records. Japan's finance minister, Satsuki Katayama, spent Friday saying there was "absolutely no sense whatsoever" that Scott Bessent, the US Treasury Secretary, had pressed her for a Japanese rate rise. Bessent, at the same meeting of the G20, the club of the biggest economies, said he was sure the Bank of Japan would "do the right thing". Traders read that as pressure. The yen swung between ¥160 and ¥155.3 to the dollar in the week. Here is the wiring. Japan's budget for the year to March 2027 assumes it pays an average of 3% to borrow for ten years, according to Deutsche Bank's Kentaro Koyama; it is already there, so every hundredth of a percentage point above that is interest the budget did not plan for. Higher rates at home pull Japan's life insurers back from foreign bonds (they sold a net ¥3tn of overseas debt through August 22), and Japan is the largest foreign holder of US government bonds. So the US Treasury Secretary appears to be encouraging the one policy move most likely to shrink the pool of buyers for his own bonds, in the same month his department starts buying back its long-dated debt to keep that market working. The buybacks are paid for by selling very short-term IOUs, so the Treasury is shortening how long its debt runs at the moment long-dated bonds are being sold off. It has swapped the risk that long bonds fall in price for the risk of having to come back and borrow again, more often, at whatever rate is on offer. It is small: $4bn against a market where hedge funds alone carry $4tn of gross exposure. But it starts Tuesday, and it is the first support operation on the c

Crypto and TradFi contagion6 Sepmedium

The companies that hold bitcoin ran 20 points ahead of bitcoin

The premium investors pay for companies that hold coins is the froth that goes first, but the reserves behind digital dollars and the mortgages backed by bitcoin are the pipes that would carry a crypto slump into government debt and housing.

Bitcoin has risen by nearly a quarter in twenty days (23.7%, to $79,800), and the listed companies whose whole business is holding it have risen far more: Strategy is up 42.7%, BitMine 32.8%, SharpLink 35.3%, Galaxy 30.6%, Coinbase 20.2%. On Friday, with bitcoin flat, BitMine fell 5.5%, Coinbase 4.2% and SharpLink 3.3%. That gap is the story. Investors are paying more for these companies than the coins they hold are worth, and that extra is what borrowed money looks like without any borrowing: it swells when the coin rises and is the first thing to vanish when the coin stalls. Meanwhile the plumbing between crypto and the banks thickened in ways that will outlast any premium. Twenty-one institutions including Bank of America, Capital One, Citi, Goldman Sachs and Wells Fargo say they intend to issue a digital token meant to be worth exactly one dollar, a stablecoin, in the first half of 2027. Circle, which runs one of the two biggest, created 5bn new USDC in a single week. Citi ran live transactions on September 2 in which bank deposits moved as digital tokens across Swift's ledger, the network banks use to message each other about payments. Virtu, M1X and Tradeweb settled a loan of cash borrowed overnight against bonds put up as security entirely on a digital ledger, the Canton Network, against a government-issued digital bond, with the bond, the cash and the return all settling at once or not at all. Tether, the other giant, has more than $183bn of tokens in circulation and makes its profit by holding US government debt against them; one sweep puts that holding at about $141bn. And Coinbase and Better launched mortgages backed by bitcoin, with a waiting list one recap put at $260m. The mechanism deserves spelling out. The borrower pledges bitcoin as the security for the down payment rather than selling it, so the loan is secured on a house and on an asset that moved 24% in a month. If the coin falls, the borrower must put up more or the lender sells the coins into a falling market. That is a demand from a lender for more cash, right now, because a bet has moved against you, the same dynamic that took down the crypto lenders of 2022, now attached to residential property. The route into the wider system we watch is the reserve pool. Tether plus Circle is a very large holder of the government's shortest-term IOUs, and it shrinks when token holders cash out, which happens in days, not quarters. The premiums are froth, and froth popping does not move our numbe

Hidden leverage and shadow banking4 Sephigh

The world's largest bond manager sees 2007 in two products

The largest bond manager in the world is saying, on the record, that two of the structures moving loan risk from banks to insurers are being priced the way the middle slices of bundled subprime mortgages were in 2007.

Christian Stracke, president of Pimco, the largest bond manager in the world, told Bloomberg this week that some buyers of two structures now carrying loan risk out of the banks are not getting paid enough for the risk, and that the structures share "at least some similarities" with the subprime mortgage paper of 2007–08. Fund managers compare things to 2007 for a living, but Pimco is the firm whose whole business is deciding whether a bond pays enough, so it does not say so lightly. He also said the problem is not systemic and that Pimco is not bracing for a crisis. Both halves matter. Here is how the two products work. The first takes stakes in private investment funds, the ownership slice that gets paid last when anything goes wrong, pools a lot of them together, and cuts the pool into slices ranked by who gets paid first. The top slices get a safe-looking grade from the rating firms and are sold, mostly, to insurers, whose rules let them hold rated debt cheaply but not fund stakes. That trade has a name, a collateralized fund obligation, and Bloomberg puts the wider market these sit in at over $1tn. The second runs the other way. A bank keeps a portfolio of loans on its own books but pays an outside investor to take the losses on the middle slice, and the amount of its own money the rules make it hold against those loans falls. That one is called a significant risk transfer, and the investor has, in effect, sold insurance on the middle of a loan pool. "Very similar to what we saw before the GFC," Stracke said. "Examples of people under-pricing the risk to get leverage." In other words, like the run-up to the 2008 crisis: people accepting too little pay for a risk because it lets them borrow more against it. This is our whole thesis in two products. The second moves loan risk out of the bank, where regulators charge for it and stress-test it, and into a fund or insurer whose exposure appears in no bank filing. The first turns fund stakes that cannot easily be sold into something an insurance regulator counts as a bond. Neither is priced against a market, because there is not one. What the interview does not tell us, and what nobody publishes, is how large the pile of those middle slices held by insurers is, or what the holders say it is worth. Stracke's "not systemic" is a judgment about size. Ours is that the size cannot be established from outside, which a regulator would call the point. This adds nothing new to the pile. It is one more credible perso

Signs of the times

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

Revenue the company will not stand behind: $18.1bn

Nscale, raising $3.5bn before listing its shares, is telling investors it could generate $18.1bn of annual revenue and $13.6bn of profit before interest, tax and wear on its equipment, figures it says are "for illustrative purposes and not formal guidance", on the strength of $103bn of signed contracts, $45bn of them from Anthropic. A company can now raise as much money as an established listed firm is worth on numbers it declines to stand behind.

neocloudpre-ipovendor-financing

4 SepBloomberg

A mortgage with a bitcoin deposit

Coinbase and Better have launched mortgages where the borrower pledges bitcoin as security for the down payment instead of selling it, with a waiting list projected at more than $260m. The pledged coins moved 24% in the last twenty days; the house did not.

crypto-collateralhousingmargin-call

5 SepBitcoin.com (via web sweep)

France: New York's bars not pure enough

France moved 129 metric tons of gold out of New York to Europe and gave as its reason that the bars did not meet the required purity standard. The Dutch, moving 86 metric tons to London in the same window, said "increasing geopolitical unrest"; the gold went the same direction either way.

goldrepatriationreserves

5 SepThe Economic Times

100 tons of Russian gold, by way of Hong Kong

Hong Kong imported almost 100 metric tons of gold from Russia in the first seven months of 2026, a record and nearly three times last year's pace, and buyers in the city have taken about $35bn of Russian bullion since 2022. Sanctioned metal has found a place to trade as fast as Western vaults have found reasons to empty.

goldsanctionshong-kong

6 SepFinancial Times

Nvidia buys the model library, $13bn

Nvidia has agreed to buy Hugging Face, the open-source platform where most AI models are stored and shared, for $13bn. The chip vendor that already lends its customers the money to build their data centers now owns the shelf the models sit on.

nvidiam&aai-stack

4 SepFinancial Times

The rumour mill

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

Confirmed

“The Dutch central bank moved billions of dollars of gold out of the US and Canada to the UK to be better prepared for a severe crisis, leaving about 18% in North American vaults.”

The Dutch central bank did move about 86 metric tons of gold from New York and Ottawa to London between March and August 2026, and New York and Ottawa each now hold 18.5% of its total. This one the gold channels had right.

Claimed by ITM Trading (Daniela Cambone)

Partly true

“The US Treasury is issuing debt through one door while buying it back through another.”

The Treasury Department does run buybacks to keep its long-dated debt trading, rising to at least $4bn per operation from September 9, and it pays for them by selling very short-term IOUs. So it is swapping long debt for short rather than retiring any: a change in when the debt comes due, not a reduction, and not the central bank.

Claimed by Gregory Mannarino

Partly true

“The Fed is buying securities again under the label 'reserve management purchases', which is QE by another name.”

The Federal Reserve does have a program of buying short-term government IOUs to keep the banking system topped up with cash, but the New York Fed's schedule shows none between August 14 and September 14; about $17bn of purchases that simply replace bonds coming due continue. Calling that QE, the large-scale bond buying the Fed uses to push down interest rates, is the channel's description, not the Fed's.

Claimed by Gregory Mannarino

Partly true

“US margin debt crossed $1tn in July 2025, rose to $1.5tn by June 2026, then fell back to $1.4tn.”

FINRA's figures for money borrowed against shares to buy more shares support roughly $1.5tn in June 2026 and $1.417tn in July; the claim that it crossed $1tn in July 2025 is not established. An $80bn fall in that borrowing with stocks near their highs is a genuine paying-down of borrowed money, small but the only one in this window.

Claimed by Meet Kevin

Earlier developments

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

Private credit and BDCs5 Sephigh

From 88 cents to 5 in eight months

Private credit's stability rests on marks nobody tests until a borrower stops paying, and this is what a test looks like.

At the end of last year, Blue Owl Capital Corp — OBDC, the listed BDC — carried its first-lien loans to Loparex, a maker of adhesive liners owned by Pamplona Capital, at 100 cents on the dollar and its second-lien debt a little below 90. This week Moody's deemed the company in default and said Chapter 11 may be coming. The second lien is now marked at about 5 cents. OBDC put the name on non-accrual after the second quarter, which a BDC must do when full repayment is in doubt (Bloomberg). This was not a surprise borrower. S&P said in 2024, after a distressed exchange it treated as tantamount to default, that Loparex's capital structure was "unsustainable". The company skipped a June interest payment on the second lien and is under forbearance through September. So the question is not why the loan went bad. It is why a loan to a company already judged unsustainable was marked at 88 in December. The mechanism is the point. A BDC's loans do not trade. The manager values them quarterly, and Bloomberg notes the same stressed loan is routinely carried at different values by different lenders. The mark is a claim the manager makes about its own portfolio, and it is only tested when the borrower stops paying. Then it moves in one step. How much this matters for OBDC is limited: non-accruals are 0.8% of fair value. The sector numbers are where it bites. Reuters' review of 44 BDCs put aggregate fair value at 97.57% of cost at end-June, from 99.25% at end-2025, with about 4% of borrowers marked below 80% of par against roughly 1% in 2023–25 (via web sweep). OBDC rose 0.2% on Friday and is 4% off its high; Blue Owl the manager fell 0.8%. The market is treating Loparex as one bad name. It is one bad name. It is also a demonstration of how far a private mark can sit from where the loan would clear, for how long. Bloomberg does not give the current first-lien mark; that is the number we want.

Hidden leverage and shadow banking5 Sepmedium

Jefferies' invoice fund finds a second fraud

Lending that used to sit on a regulated balance sheet now sits in a fund whose collateral turns out to be paper, twice.

Point Bonita, the private credit fund inside Jefferies' Leucadia Asset Management that lent to the collapsed auto-parts group First Brands, has almost $500mn of exposure to the iron ore trader Radiant World and a linked company. Jefferies obtained a freezing order for up to $499mn from London's High Court against Radiant, its founder Pinkesh Nahar, an allegedly affiliated firm called Sapphire Minmetals and its chair Rakesh Sethi. Radiant and Nahar deny wrongdoing. This comes on top of the $715mn of First Brands exposure Jefferies disclosed last October (Financial Times). Point Bonita does invoice-backed lending. The fund advances cash against receivables: a piece of paper saying a customer owes the borrower money. The loan is as good as the paper. If an invoice is invented, or pledged to two lenders, the collateral is nothing, and the lender does not find out until it tries to collect. Several of Radiant's lenders cut ties in recent weeks over alleged inconsistencies in the documentation behind its financing. Point Bonita's exposure had grown from $35mn in 2021 to hundreds of millions over four years. Two alleged frauds in one fund is not two pieces of bad luck. It says something about an underwriting model that grew fast against documents it did not independently verify, and that appears to have been the same in both cases. The market's view: Jefferies rose 1.8% on Friday, is up 4% on the week and sits 2.75% off its high. That is a price that says this is fund investors' money, not the bank's. The FT's report does not say how much, if any, of the exposure is Jefferies' own capital, and that is the number that decides whether this is a fund problem or a Jefferies problem. Trade finance is what banks used to do with a credit committee; it is now done in a fund with redemption terms, and the FT notes Point Bonita has faced a wave of redemption requests. That is the migration this site is about, in miniature.

Bond market dysfunction5 Sephigh

The junk index says 265. The tail says 1,053.

The number everyone watches for credit stress is built so that it is the last to notice the weakest borrowers breaking.

Our own crash trigger watches the high-yield index spread. It is at 265 basis points, tighter than a month ago, and needs to reach 800 to fire. Meanwhile the spread on companies rated triple-C or lower has climbed to 10.53 percentage points, from 8.08 a year ago, the highest since the aftermath of last year's tariff shock (Financial Times). Both numbers are true. They describe different markets. The index spread is a weighted average dominated by double-B issuers — large, mostly profitable, and, in the words of Ninety One's John Stopford, "as expensive as they have ever been". Triple-C names are a small slice by market value, so their spread can go to 1,053 without moving the headline much. Higher Treasury yields — the 10-year hit 4.82% this week, its highest since 2023 — do nothing to a double-B company paying a fixed coupon until it refinances. A triple-C company refinancing now pays roughly the base rate plus ten and a half points. The damage shows in the default data. JPMorgan counts $40.1bn of default actions this year, up 9% on 2025, led by cable and satellite after Dish DBS's $9.75bn default in June. The recovery rate over the past twelve months is 29%, against a 25-year average of 40%. Corbin Capital's John Cocke attributes part of that to aggressive restructurings that have taught investors to expect less back. Why this matters for private credit: BDC borrowers are unrated but mostly single-B and triple-C equivalents, and their loans float. They do not wait for refinancing to feel SOFR at 3.66% plus a spread; they feel it every quarter. Loparex, above, is what the tail looks like inside a BDC. We read this as observable stress, confined for now to the weakest borrowers. HYG is 0.4% off its high. The thing to watch is whether single-B spreads follow. If they do, the index will finally say what the tail has been saying.

Fed, Treasury and policy5 Sepmedium

Japan's regulator follows the megabank money offshore

The leverage under private credit runs on bank money, and the regulator of the cheapest bank money in the world has started asking where it went.

Japan's Financial Services Agency will examine whether the country's banks are properly assessing the credit risk in their lending to overseas nonbank lenders and real estate firms, Nikkei reports. It will also review lending policies and project screening for data centres, and study what rising interest rates do to deposit stability and to unrealised losses on government bond holdings. The item is going into a draft of the agency's annual priorities plan, to be finalised by June next year (Nikkei). This matters because of where the private credit machine gets its leverage. The loans have left bank balance sheets. The funds that hold them borrow — fund finance, back-leverage, NAV loans — and Nikkei says overseas nonbank intermediaries are "increasingly tapping Japanese banks for funding", mainly the megabanks. So the corporate loan is not on the bank's books; the loan to the lender is. The risk did not leave the banking system. It went one layer up. Pimco's president Christian Stracke described the other end of the same pipe this week. Collateralised fund obligations and synthetic risk transfers — structures that shift bank and fund exposure to insurance companies — show "people under-pricing the risk to get leverage", and writing protection on a mezzanine tranche is "very similar to what we saw before the GFC". He says it is not systemic (Bloomberg). What has changed the economics is the 10-year JGB at 3% for the first time since 1996. The yen funding that made lending to foreign nonbanks attractive is no longer nearly free, and the FSA's own list — deposit stability, bond losses — is a list of a bank under rising rates. One analysis circulating this week puts Japanese investors' net sales of overseas debt at ¥3tn ($18.7bn) through 22 August, the largest year-to-date outflow since 2022; we have not been able to corroborate that figure from a paper of record. None of this is an unwind. A priorities plan finalised in 2027 is measurement. A megabank actually pulling a facility from a fund would be something else, and that is what would move our ignition number.

Crypto and TradFi contagion5 Sepmedium

The Treasury buyer Bessent promised is shrinking

A marginal Treasury buyer that sells exactly when markets are stressed is not a substitute for the ones that are leaving.

Tether's USDT, the largest stablecoin, contracted by nearly $3bn to about $184bn in the first half of the year, putting it on course for its first annual shrink since the 2022 crypto crash. Circle's USDC fell by a similar amount to roughly $72bn (Bloomberg). Last year Treasury Secretary Scott Bessent said the stablecoin market could grow tenfold to $3tn by the end of the decade, which would make issuers a major new buyer of the government's debt. The mechanism is simple and that is the problem. A stablecoin issuer holds Treasury bills against every coin, so a dollar of coin is roughly a dollar of bill demand. But coins are where traders park money between trades. Supply tracks crypto trading volume. When trading dries up, holders redeem, and the issuer sells bills. This buyer is procyclical: it shows up when risk appetite is high and leaves when it is not, which is the opposite of what a Treasury market losing its old buyers needs. Norway's oil fund proposed cutting roughly $80bn of Treasuries this week; gold now outranks Treasuries in official reserves. There is a contradiction in the window worth stating. A crypto-industry weekly recap, surfaced by a web sweep, says Circle minted 5bn USDC in a single week and that 21 firms including Bank of America, Citi and Goldman Sachs plan a joint dollar stablecoin for the first half of 2027. That is a single tier-2 source and we cannot reconcile it with the first-half attestation figures — though both could be true if the rebound is recent. Bitcoin is up 24% in twenty days to about $80,000 and Strategy is up 43%, and Bloomberg itself says the stall may prove temporary. As a payments product, stablecoins are fine. As a pillar of Treasury demand, this is a fair-weather friend, and the weather has been changeable.

Hidden leverage and shadow banking4 Sephigh

The buyer holding up the government bond market borrows its money every night

When the extra buyer the US government bond market now depends on is a hedge fund that has to renew its borrowing every morning, a cash squeeze becomes forced selling within days, not quarters.

Hedge funds owned about $2.6tn of US government bonds at the end of last year, and their total bets on those bonds, counting the ones they own and the ones they have bet against, came to $4.0tn ($1.6tn of it bets that prices fall). They paid for the bonds with $3.0tn of cash borrowed overnight against bonds put up as security. The figures come from a paper the Federal Reserve, America's central bank, published in June, and Reuters' Jamie McGeever dug up this week. He adds that the bets, the overnight borrowing and the amount changing hands each month have all more than doubled since the start of 2023, and that the 50 largest funds account for roughly 90% of it. Fifty firms, then, carry most of a $4.0tn position in the debt of the US government on money they have to borrow again every single morning. The trade behind it is hedge funds borrowing heavily to profit from a small gap between two nearly identical prices. A fund buys a government bond, sells a contract to deliver that same bond at a fixed future date, and pockets the small difference between the two prices. The bond is paid for with cash borrowed overnight against bonds put up as security, so the position has to be financed afresh every day. The New York branch of the Fed published its own map of this market on September 1. It says the corner where dealers lend to 'levered accounts, most of which are hedge funds executing Treasury relative-value strategies' is the one where loans are arranged privately between two parties with no clearing house standing in the middle, and where borrowing costs the most of the three segments. In other words, the banks' customers in that corner are the funds running exactly this trade. This is not new risk. The paper describes the end of last year, and it has been in our number. What changes the picture is who sits beside these funds. Norway's government fund has proposed selling roughly $80bn of US government bonds. China's reported holdings, per a Reuters figure that survived our fact-check, are at their lowest since 2008. The Treasury Department, which borrows the money the government spends, starts buying back old government IOUs that do not come due for twenty or thirty years at $4bn a time from September 9, because Bessent, who runs it, describes trading in 30-year bonds as 'especially poor'; in other words, they cannot be sold in size without moving the price. Patient holders who never borrowed against their bonds are being replaced, at the edge of the market

Private credit and BDCs5 Sepmedium

The lender that got out of Bathla nine months before it collapsed

Australia is running the whole cycle in miniature, including the part where the best-informed lender got every dollar back and the loss landed on whoever put up the new money.

Alceon, an Australian fund that lends to companies in place of a bank, had staff from one of its own businesses working on-site at Bathla Group projects for more than a year. Then, in December 2025, it sold its way out of nearly A$460m of loans to Bathla when the company borrowed again to pay off the debt coming due. Nine months later Bathla collapsed owing A$3.2bn to A$3.5bn, with what ASIC, the agency that polices Australian markets, calls 'substantial exposure to private lenders'. Alceon told investors it no longer has any. The lender that knew the most got out whole, and somebody else is holding the loss. The word that matters is refinancing. In a book of private loans, a refinancing is recorded as the borrower paying back the full amount. The value the lender said the loan was worth was tested, and it held, for the lender who left. The loan did not get any better. It moved to whoever supplied the new money, and the Australian Financial Review's report does not say who that was. What it does say is that the lender with people inside the building chose to leave, and the lenders who replaced it did not have that view. This is the thing we keep coming back to: in a market with no public price, the exit of the best-informed creditor looks exactly like a healthy repayment. The sequence has now run its full course. ASIC and Australia's central bank, the RBA, describe the 'first significant cracks' in a market of roughly A$200bn after Bathla and the A$1.8bn collapse of Jon Adgemis's hospitality group. Four funds, Merricks, Longreach Credit, Centuria Bass and MA Financial, have limited how much money investors can take out. Centuria Bass stopped both withdrawals and new money on August 14, and MA Financial's Secured Loan Series now lets out 1% of the fund a month. The sums are small next to the US market. The order of events is not: the borrower fails, the stated values move, the exits narrow. In the US the values have moved and BCRED, Blackstone's fund that lends to private companies, is capping withdrawals at 5%, but Blackstone's shares (BX) are only 8.8% below their high and Ares Capital's (ARCC) less than 1%. This moves nothing in the US number, because Australia was already in it. What it gives us is the order of events and a fix on where each market sits in it. Australia has reached the stage where the exits close. The US has reached the stage where the stated values move. The pile is the size it was; we can now see one step further down the sequence tha

Crypto and TradFi contagion4 Sepmedium

Three-quarters of a trillion dollars of borrowed stock bets on crypto exchanges

Bets on stocks made with borrowed money, on exchanges no US regulator supervises, have grown 33-fold in nine months, and that is a new place for a forced seller to appear.

Contracts that let traders bet on stocks, stock indexes and commodities with borrowed money traded $778bn in August on the major crypto exchanges, according to Fasanara Digital via Bloomberg. In November the figure was $23.5bn. Such contracts are now 23.48% of everything traded in that form on those platforms, up from 0.5%. Borrowed bets on American shares have found a home outside the system built to supervise them, and they got there in nine months. The contract is a perpetual future: a bet on a price that never expires. Instead of settling on a date, those betting up and those betting down pay each other a small fee, the funding rate, to keep the contract's price close to the real one. The security a trader puts up is usually a stablecoin, a digital token meant to be worth exactly one dollar. The exchange decides how much borrowing it allows, and if a trader's security runs out an automatic program closes the bet. There is no bank standing behind the trader, nobody phones with a demand for more cash, and the US rule limiting how much a broker can lend against shares (Regulation T) does not apply. Exchanges built on a platform called Hyperliquid, such as Trade.xyz, launched a run of these contracts earlier this year on silver, oil and shares of companies not yet listed. 'The volatility of some stocks is multiple times higher than Bitcoin,' says Fasanara's Nikita Fadeev. 'Here you can also trade these kinds of assets ... with much more leverage.' In other words, traders can borrow far more against something that swings far more. Two cautions. The $778bn is the total that changed hands in a month, not the amount of bets open at any one moment, and Bloomberg does not say how much borrowing the average bet carries, so the capital actually at risk is unknown. And a chain of forced closures on an offshore exchange does not hit the New York Stock Exchange directly. But this is risk moving house in its purest form. Borrowed bets on US shares and commodities are being built on exchanges that file nothing with US regulators, where the exchange is also the clearing house that guarantees the trades and the insurance fund that pays when they fail. Traders who profit from tiny gaps between the crypto price and the real one keep the two tied together, which means they also carry trouble back across the link. Set beside the stablecoin figures (Tether shrank $3bn in the first half of the year as crypto trading dried up), the picture is of crypto's traders leaving crypto

The dollar, gold and reserve status5 Seplow

Central banks now hold more gold than US government bonds

The central banks that used to buy US government bonds no matter what are shifting into an asset that pays no interest and cannot be frozen.

Gold made up 27% of the reserves the world's governments and central banks hold at the end of 2025, ahead of US government bonds at 22% and the euro at 15%. That makes gold the largest single holding for the first time since 1996, according to reporting that surfaced this week. Central banks bought 51 tonnes in June, Poland and China leading. Australia's central bank has become the first major one to confirm it has cut its dollar holdings. And the Dutch central bank said this week it is moving 86 tonnes out of New York and Canada: 59 tonnes sold in New York and bought back in London, 27 tonnes physically moved to a vault at Zeist, and New York's share of Dutch reserves cut from about 30% to 18%. The buyers the US bond market could once take for granted are choosing metal over paper. The honest caveat is arithmetic. Gold is at $4,477 an ounce. A share measured by value rises when the price rises, and we cannot split the 27% into 'bought more gold' and 'gold went up'. The same figures show the dollar's share of the currency reserves central banks hold ticking up to 57.1% in the first quarter of 2026 from 56.4%. Norway's proposed $80bn cut in US government bonds leaves its dollar holdings, in its own words, 'essentially unchanged'. The dollar index, which tracks the dollar against a basket of other currencies, is at 99.2 and down less than 1% on the month. This is not a flight from the dollar. It is something narrower: a shift away from US government bonds specifically, by the holders who never needed to sell them. That ties straight into the hedge funds above. Every tonne of gold a central bank buys instead of a bond is a bond that ends up, at the edge of the market, with someone paying for it each night with cash borrowed against bonds put up as security. The Dutch move is the tell. It is not a bet against America. It is a decision that gold is easier to use 'in crisis situations' if it is not in New York. For the meter this is fragility, and the slow kind. Nothing sparked. The patient holders are thinning out, which leaves more of the market to the borrowed kind, and that is one more thing on the pile. It is not enough on its own to move the number this week; it is the kind of thing that makes the number hard to bring down.

Household credit5 Sepmedium

Car loan arrears at a 32-year high; the lender's shares at a record

Households at the bottom are falling behind, and the market has decided the lenders were built for exactly that. The verdict has held so far; a second wave of missed payments would test it.

Car loans to Americans with poor credit were going bad in January at the worst rate in the 32 years that Fitch, one of the three firms that grade how likely a borrower is to pay you back, has kept count (6.90% of them 60 or more days late). It eased to 5.8% by the end of the second quarter, then worsened again in July, 'particularly in subprime', Fitch says, concentrated among lower-income borrowers carrying a lot of debt. The New York branch of the Federal Reserve puts car loan balances three months or more behind at 5.5% in the second quarter, and credit card balances that far behind at 12.9%, down a hair from 13.1%. Some 3.6 million people with federal student loans have defaulted since the payment pause ended. The people at the bottom of the credit ladder are missing payments in numbers not seen in a generation, and their lenders' shares are near records. Credit Acceptance, which lends to the riskiest car buyers of all, closed Friday at $605.64, 0.4% below its high and up 4.3% on the month. Ally is 2.8% below its high. Affirm is the exception, down 6.9% in five days. The mechanism squares those two facts, at least for now. Lenders in this corner never expect everyone to repay. They charge rates that assume a large share will default, then fund the loans by bundling them together and selling slices of the income to investors: the loans go into a trust, the investors holding the top slices get paid first, and the lender or a junior investor holds the slice that takes the first loss. A 6.9% delinquency rate is a disaster only if total losses exceed what the extra interest and that first-loss slice were built to soak up. A share price at a record says the market thinks they were. What we cannot see is whether Fitch's July turn is the start of a second wave. The January figure is old, and it was a measurement, not news. July is the piece worth watching, because it arrives as the Federal Reserve leans toward raising interest rates on September 15 and diesel sits at a record $5.85 a gallon, costs that land first on exactly the borrower Fitch is describing. For now this changes the odds very little, and we say so plainly. The stress is real, it was known, and the structures built to absorb it have absorbed it. If July turns into a trend, it becomes fragility, and the first sign will be a first-loss slice getting eaten through faster than the lender assumed.

Fed, Treasury and policy4 Sephigh

Ten days to a Federal Reserve meeting nobody agrees on

An interest-rate decision argued over in public ten days before it happens is the nearest thing on the calendar to a policy mistake in progress, and the rates the government pays to borrow for twenty or thirty years are already the highest in years.

The August jobs report showed 162,000 jobs added, nearly three times the roughly 55,000 that forecasters had expected, and July was revised from a loss of 23,000 jobs to a gain of 21,000. A miss of that size matters because it pushes the Federal Reserve, America's central bank, toward raising interest rates at a meeting ten days away, at the very moment the president is demanding it cut them. Within hours he posted: "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT", named Switzerland, Mexico and the EU as the targets, and said the Fed should be "at 1% or half-a-percent" rather than 4% (Bloomberg). The collision now has a date. The Fed's chair, Kevin Warsh, told the central bankers' annual gathering at Jackson Hole on August 28 that "two percent is a firm and fixed target" and that unless inflation is clearly heading there "we still have work to do". Traders read that as a signal that rates could go up rather than down, and put the odds of a September rise above 50%. The meeting starts September 15. On the same afternoon as the president's post, his own economic adviser Kevin Hassett argued the other way, saying consumer prices over the past three months are rising at an annual pace of 1.6%, and that a favorable inflation reading would be a "strong argument" to hold rates where they are. The part that matters most is what the government pays to borrow for a long time. It pays 4.78% to borrow for ten years and 5.25% for thirty, and the Treasury Department's enlarged bond buybacks, the program Scott Bessent announced to fix "especially poor" trading conditions in thirty-year bonds, had not carried out a single operation as of August 31. Ordinarily a rate rise into a market worried about inflation and deficits lowers the long-term rate, because bondholders need less compensation for the risk that inflation eats their money. The president rejected that explicitly: "It doesn't reassure the bond market." So three outcomes. A rise defies the president and tests the Fed's independence in the open. A hold, with Hassett's inflation number as cover, leaves the market asking whether it was the data or the post. A cut is implausible on this data, and the market for long-term government bonds would say so. So far investors have priced the Fed doing what the data says: rates flat, the dollar up 0.16%, and the VIX, the market's gauge of expected turbulence, at 14.5, which is calm. Where it fits our argument: policy is the one area where risk

The AI capex bubble4 Sepmedium

Nvidia lends $2bn to a customer that says it has $103bn of contracts

Each new computing company Nvidia funds adds another loop to the circle in which the chipmaker finances the demand for its own chips, and the contract backlogs that justify it rest on customers who are themselves still raising money.

Nscale, a London company that rents out computing power for artificial intelligence, is in talks to raise as much as $3.5bn before it lists its shares on the stock market: up to $1.5bn of convertible notes, debt that can later be swapped for shares, led by Daniel Loeb's Third Point, and about $2bn of financing from Nvidia, according to Bloomberg. Nvidia makes the chips Nscale will buy with the money, so the supplier is funding its own customer's order. The listing could raise another $3bn on top. Nscale is telling investors its contracts total about $103bn, following a $45bn agreement to supply computing power to Anthropic, and that it could generate about $18.1bn of annual revenue. Take the pieces in order. Nvidia is the company whose chips Nscale will buy with the money; Nvidia is also putting up more than half of the money. That is vendor financing, a supplier lending its customer the money to buy its product, and it is the pattern we track from CoreWeave to Lambda to IREN. Nvidia's share price closed at a record on Thursday. The convertible notes are offered at the listing price minus a double-digit percentage discount, with the discount adjusted up to a $30bn valuation. That means the lenders who get in before the listing pay less than the public will, and their money counts as debt until they choose to turn it into shares. Then the $103bn. Contract value is not revenue and it is not cash. It is a promise by customers, chiefly Anthropic, to pay for capacity over years, contingent on that capacity being built, powered and delivered on time, and on the customer still being able to pay. Anthropic's ability to pay $45bn depends on its own fundraising, which depends in part on the same giant cloud companies and chipmakers. Bloomberg's sources do not say what the cancellation rights are or how much of the $103bn the customers must pay whether or not they use the capacity; we cannot tell. None of this is unusual by 2026 standards, and that is the point. It is a company valued at $30bn whose customer list depends on the same handful of balance sheets, the lists of what each company owns and owes, that are financing it. The smaller computing-rental companies rallied on the day (Nebius +7.5%, IREN +7.3%, CoreWeave +5.6%) while Microsoft fell 2.1% and Alphabet 1.1%. The market is paying more for the borrowers and less for the customers. For the odds of a crash this is fragility rather than a spark: one more loan in a circle that holds only as long as everyone in

The AI capex bubble4 Sephigh

The credit-rating firm that has to guess

When the firm whose grade decides who may own the debt behind $7tn of spending says the financings are getting harder to see into and the returns are undisclosed, the safe-to-hold label is doing more work than the analysis behind it.

S&P Global Ratings, one of the three firms that grade how likely a borrower is to pay you back, has told investors in its latest "temperature check" on the biggest cloud companies that it cannot see the returns on the $7tn of spending it is grading, as quoted by the FT. Rating firms do not usually write sentences like this one: "Every time we take a deep dive into this sector, we find that capex is rising faster than we anticipated, financings are becoming more complicated and less transparent, and that returns on investment will take years to realize." In other words, the companies are spending more than expected on building things, borrowing in ways that are harder to see into, and the payoff is years away. The numbers behind it: S&P assumes the six largest US cloud giants (hyperscalers, in the industry's word) will spend more than $7tn in the five years through 2030, and reckons half the growth generated by the US private sector over the past year was linked to AI-centric activity. And the piece of information the ratings most depend on is missing. "The big six hyperscalers don't quantify their returns on investment on AI," the report says, either because it is hard, or because "entities just choose not to share that data." Why this matters for the machine: a credit rating is the grade that decides who may hold a bond. Insurers, pension funds and cautious lenders can own these companies' debt (roughly $219bn of top-grade new borrowing this year by one asset manager's count, an increasing share of it in euros) because the agency has signed off. S&P says it is filling the gap with an assumption: that the largest companies in the world probably know what they are doing. It is drawing guardrails around commitments that behave like debt without being called debt (leases, agreements to buy electricity for years ahead, ventures held off the companies' own books such as Meta's $27bn Hyperion project with Blue Owl), measured as a multiple of yearly operating earnings (EBITDA), above which ratings would come under pressure. This is a fairly exact description of the thesis this site runs on. The obligations are real, they are increasingly structured to sit outside the corporate balance sheet, the list of what a company owns and owes, and the institution whose job is to measure them says it cannot see the return that justifies them. Nothing broke on Thursday. Microsoft and Alphabet fell about 2% and 1%; Meta and Oracle sit at their highs. The market's assumption an

Bond market dysfunction4 Sephigh

Norway's oil fund wants $80bn less in US government bonds

The most patient buyer in the world is saying it holds US government bonds because they are easy to sell, not because they pay, which is the same judgment the market for long-term government debt has been reaching since the summer selloff began.

Norges Bank Investment Management, which runs Norway's $2.3tn oil fund, has proposed cutting government bonds from 70% to 50% of the bond portfolio it measures itself against, in a letter to the finance ministry signed by Governor Ida Wolden Bache and chief executive Nicolai Tangen (FT). The FT estimates the change would remove about $106bn of government bonds, most of it US debt (roughly $80bn), with the money going mainly into bundles of American home loans guaranteed by government-backed agencies (agency mortgage-backed securities). It matters because this is the most patient large investor in the world deciding that US government bonds no longer pay enough for what they are. First, what this is not. It is not an exit from the dollar: the fund says its dollar exposure would be "essentially unchanged", and the mortgage bundles are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, so the exposure to a US government default barely moves. Nor is it a retreat from bonds whose prices fall hard when interest rates rise; the mortgage bundles do that too. What it is: the world's largest sovereign fund concluding that US government bonds are worth holding for one reason only. The letter says 50% "will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets", and that the rest of the bond index should "provide exposure to more sources of risk premiums". In other words: we hold US government bonds because they can be sold quickly in a panic, not for the return, and we need fewer of them for that. The mortgage bundles pay a little more because the holder bears the risk that homeowners repay early. The plumbing point is who is on the other side. The buyer Bessent hoped the stablecoin issuers would become is shrinking (see below). The holder who now sets the price at the margin is hedge funds, investment firms that manage money for the wealthy and can bet in ways ordinary funds cannot, holding $4tn of US government bonds funded by $3tn of cash borrowed overnight against those bonds put up as security, according to the Fed paper Reuters cited this week. That is money that leaves the moment its lenders stop lending. Norway is a patient buyer using no borrowed money stepping back in the same season the borrowed-money buyers step forward. $80bn is a proposal, would be phased in over years, and is small against the whole market for US government debt. But the direction is the same as every other data point in this area this s

Crypto and TradFi contagion4 Sepmedium

Bessent's trillion-dollar buyer shrank by $3bn

The policy bet that crypto would deliver a new permanent buyer of US government debt depends on a source of demand that shrinks exactly when markets get nervous.

The two largest digital tokens meant to be worth exactly one dollar, stablecoins, shrank in the first six months of the year, Bloomberg reports: Tether's USDT contracted by nearly $3bn to about $184bn, on track for its first annual decline since the 2022 crash, and Circle's USDC dropped by a similar amount to roughly $72bn. This matters because Scott Bessent has said the stablecoin market could grow tenfold to $3tn by the end of the decade, making the coins' issuers, who hold short-term US government debt as reserves, trillion-dollar buyers of that debt. The base he is counting on is going the other way. The mechanism is simple and the direction is the problem. Stablecoins are where traders park cash between crypto trades. Demand for them rises and falls with crypto trading volume, which dried up after prices crashed late last year. Their holdings of government debt are therefore a buyer that appears when investors feel bold and disappears when they do not, the opposite of what a government bond market under pressure wants from the buyer who sets the price. A combined total around $256bn was never going to fund the deficit; what Bessent was selling was the growth rate, and the growth rate has gone negative. Two things cut against the gloom. A crypto industry recap says Circle created 5bn USDC in a single recent week, which does not square neatly with Bloomberg's half-year figure; we cannot reconcile the two. And 21 banks including Citi, Bank of America, Goldman, UBS, Deutsche and MUFG say they will launch a dollar stablecoin that complies with the GENIUS Act, the law governing such tokens, in the first half of 2027. If the banks do it, the demand becomes a substitute for a bank deposit rather than a trading balance: steadier, but it is money that would otherwise have been a deposit funding a loan. Meanwhile the listed companies that exist to hold crypto fell on a day bitcoin did not: BitMine -5.5%, SharpLink -3.3%, Strategy -1.5%, Coinbase -4.2%, against bitcoin -0.2%. The coins are flat; the wrappers around them, companies that borrow to hold coins, were sold. Small moves, but the premium those wrappers trade at is where the borrowed money in this area lives. For the crash odds this is a slow subtraction from the pile of buyers rather than a spark: fragility, up a little.

Private credit and BDCs4 Sepmedium

The managers fall, the funds hold

When the market sells the firms that earn fees but not the funds that hold the loans, it is betting on a fundraising drought rather than on loans going bad, a bet that only holds if the prices the funds put on their loans are right.

On Thursday the listed firms that manage private lending funds fell and the listed funds they manage did not. Blackstone fell 1.1%, is down 4.4% over five days and sits 8.8% below its high; KKR fell 1.8%, Ares 1.0%, Apollo 0.7% and Blue Owl 0.8%. Their lending funds, vehicles that borrow money, lend it to mid-sized private companies and pass the interest to shareholders, barely moved: Ares Capital rose 0.1% and is within 1% of its high, Blackstone Secured Lending rose 0.3% and is 1% off its high, and Golub, FS KKR and Blue Owl Capital Corp were all flat to up. The extra interest shaky companies pay compared with the government was unchanged at 2.65 percentage points. The split matters because it tells us what the market thinks is wrong: not the loans, but the business of raising money to make more of them. Two markets, one set of loans. The lending fund's price is a bet on the loans themselves, and the loans look worse: loans on which the lender has stopped counting the interest, because it stopped arriving, are 3.4% of cost across ten listed funds, up from 2.5% at the end of 2025; 81% of software loans have been marked down this year; there is a roughly $15bn industry-wide backlog of investors waiting to get their money out; and BCRED is limiting withdrawals to 5% for a second quarter against 10% requested (Bloomberg). The manager's price is a bet on the fee stream: raising the next fund, keeping the open-ended vehicles growing, earning the performance cut. A withdrawal limit does not lose the manager money on the loans; it stops new money coming in. So the market is saying: the loans will mostly be fine, the fundraising machine will not. That is a coherent view, and there is one data point for it. A secondary source reports that KKR Income Trust I, which capped withdrawals in the second quarter, saw requests fall to about 2.5% of the fund's stated value in the third quarter from more than 5%; we cannot independently confirm it, but if right, the panic is not spreading fund to fund and the withdrawal limits did the job they were built for. It is genuinely one of the calmer facts of the week. It is also the view that requires the funds' own valuations of their loans to be correct, and those valuations are the thing under dispute. If the loans going bad keep compounding at the pace of the last two quarters, the fund prices are wrong and the manager prices are early. Blackstone's slide also carries its property exposure; the share price does not let us separ

Private credit and BDCs4 Sepmedium

Twelve times the loans that stopped paying, and no discount on the shares

When a fund's loans go bad faster than its share price falls, either the market knows something about how much of the money comes back, or it has not read the filings. We lean to the second.

Blackstone Secured Lending Fund, Blackstone's listed fund that lends to mid-sized private companies, has stopped counting the interest on 3.6% of its loans, because the interest has stopped arriving. In the first quarter of 2025 that figure was 0.3%, according to a Jefferies analysis summarized in this window. A lender's book does not move twelvefold in five quarters in an ordinary cycle. The fund's shares are trading near their record high anyway, and that gap is the story. It is not alone. The same table has Ares Capital going from 1.5% to 2.4%, Blue Owl's fund from 1.4% to 2.8% and Golub from 1.2% to 2.9%. Across ten listed funds of this kind, loans that have gone quiet reached about 3.4% of what was paid for them at the end of June, against 2.5% at the end of 2025. A stricter monitor puts it at 3.95%, or 5.95% if every loan to a borrower with one bad loan is counted as troubled. A loan the lender has stopped counting the interest on is a specific thing. It means the fund has decided it no longer expects to be paid. These funds exist to borrow money, lend it to mid-sized private companies, and pass nearly all the interest to shareholders as dividends, so every loan that goes quiet is a dividend cut waiting to happen, unless new lending, or interest paid by adding to the debt rather than handing over cash, fills the hole. The prices the funds say their holdings are worth tell the same story from the other side: 81% of software loans have been marked down this year, and roughly 4% of loans are valued below 80 cents on the dollar. Now the share prices. Blackstone's fund closed September 3 1.4% off its high, and up 2.2% over 20 days. Ares is 0.9% off its high. The stock market is saying these books are fine. The books are saying they are not. Two honest cautions. The fund-level figures reach us through secondhand summaries of a broker's report, not the funds' own filings, and the three aggregate numbers use different yardsticks (cost versus current valuation, loans versus borrowers), so they are not contradictory, just differently strict. There are ways to square prices with books: a loan that stops paying is not the same as a loan that loses money, lenders first in line often get most of their money back, and shareholders may be paying for the manager's skill at swapping bad loans for good ones. But set this beside BCRED, the unlisted version sold to ordinary savers, where investors who want out are being told to wait. The listed funds have an exit door th

Hidden leverage and shadow banking3 Sephigh

JPMorgan lent to a rival, then cut it off

The business of standing ready to buy and sell US government bonds has moved to firms that borrow their working money from the very banks they compete with, and those banks can pull it for any reason.

JPMorgan sharply cut the money it lends Jane Street for trading bonds last year, after the trading firm started standing ready to buy and sell US government bonds, the IOUs Washington sells to cover its deficits, in direct competition with the bank, the Financial Times reports. The cut was about 5% of everything Jane Street borrows across banks for bond trading, and it made no material difference to the firm's 2025 revenue. What matters is not the size but the reason. The firms that now keep the government bond market moving do it with money rented from their rivals, and one of those rivals has just taken some of it back for no reason other than that it did not like helping a competitor. The scale of the business is the first thing to hold. Jane Street traded more than $900bn of bonds last year. Trading firms of its kind took 10% of the industry's revenue from trading bonds, currencies and commodities in 2025, per Crisil Coalition Greenwich. That is not a fringe. It is a tenth of the market. The mechanism is the second. Firms like Jane Street trade their own capital, made bigger with borrowed money, and the borrowed money comes from the banks whose trading business they are taking. That is how non-bank firms became a large part of what keeps government bonds easy to buy and sell: they rent room on the incumbents' balance sheets, the list of what a bank owns and owes. The FT says JPMorgan's own traders were unhappy about helping to build a competitor, and that the bank has also trimmed services to Citadel Securities for the same reason. So the funding beneath the non-bank government bond market is given at the lender's discretion, and this time it was withdrawn for a commercial reason. In March 2020 similar lines were pulled for reasons of risk, and hedge funds that had borrowed heavily to profit from a small gap between two nearly identical prices, the basis trade, were forced to sell out of it. The current version of that trade is larger. A paper from the Federal Reserve, America's central bank, cited this week puts hedge funds' gross bets on government bonds at $4trn and their cash borrowed overnight against bonds put up as security at $3trn, 90% of it in the 50 biggest funds. The rule that would make those funds report how much borrowed money they use has been pushed to 2027 by the CFTC, which polices futures markets. None of this says stress is here. SOFR, the rate at which cash is borrowed overnight against government bonds, is 3.66%, and the gap betw

What would change our mind

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

The next credit reading (due Tuesday for Monday's close) showing the extra interest shaky companies pay over the government passing 3 percentage points, or the weakest-graded companies passing 12 points, while stocks hold. That would be trouble at the fringe reaching the average, and it would lift ignition.

Would move the number

A listed fund that lends to mid-sized private companies, Ares Capital or Blackstone Secured Lending, falling 5% or more on a day when HYG, the big fund of shaky-company bonds, is flat; or one of the unlisted funds buying back investors' stakes at less than 70 cents for every dollar it says they are worth. That is the lenders' own valuations being tested in public.

Would move the number

An auction of ten- or thirty-year government debt where buyers demand a higher rate than the market expected, or the ten-year rate passing 5%, in the week the Treasury's $4bn buybacks begin. That would be the first support operation failing its first test, and it would raise both numbers.

Would move the number

Downward: third-quarter filings from the private lending funds showing the share of loans that have stopped paying flat or falling and software valuations stabilizing, or the Federal Reserve holding rates on September 15 with the yen steady after the Bank of Japan meets. We would take ignition back toward the low 30s.

Would move the number