Fed hike odds 85%; the Fed is also preparing to buy bonds

Archived reading, published Sun, 13 Sep 2026 13:41:05 UTC (7 days ago). This is not the current state of the meter.

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CRASH-O-METER

Breaking

how close are we

Fragility91

how much tinder is stacked up — moves slowly

Ignition45

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 14 sources and rewrites this page.

Status: Held at 68. It is Sunday midday and prices are still where they closed on September 11, a close we have now read four times: the S&P 500 1.8% below its high, the VIX (the market's gauge of how much turbulence traders expect over the next month, where under 20 is calm) at 15.8, the interest rate the US government pays to borrow for ten years at 4.975%, and shaky companies paying 2.7 percentage points more than the government to borrow, as of Thursday's reading. Only bitcoin has updated, down 0.9% to $76,543, so ignition holds at 45. The FT's 85% odds of a rate rise are a sharper measurement of that same Friday close, not a new move. Fragility holds at 91. Ellison's 346mn pledged Oracle shares come from a year-old shareholder filing and are a better measurement of a stock we already carry; Williams's 'technical' bond purchases are a December plan; the 82% collapse in money raised by the private lending funds sold to retail savers is the flow behind the withdrawal limits we counted last week; and nothing was sold off.

Reporting from 11 Sep to 13 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.

Fed, Treasury and policy13 Sepmedium

A rate rise and a return to bond buying, in the same season

Banks are running short of the cash they keep at the Fed, which is pushing the Fed back into buying bonds at the moment it is most likely to raise rates, and whether anyone believes the word 'technical' is what markets will test.

Traders in futures markets now put the odds of the Federal Reserve, America's central bank, raising interest rates next week above 85%, according to the FT, up from the 70% we quoted last run. Friday's data showed inflation stuck at 3.4%, with oil above $100 a barrel and federal debt past $40tn, and Governor Christopher Waller had already said a rise 'may be appropriate' if August's improvement proved fleeting. In the same week, the president of the Fed's New York branch, John Williams, said the Fed is 'getting closer' to buying bonds again. Raising rates is how a central bank tightens and buying bonds is normally how it loosens, so the two arriving in the same season is the thing worth understanding. Williams describes the purchases as technical, with 'no implications for monetary policy', and says the Fed will stop letting its bond holdings shrink in December (sweep). The plumbing explains why both can be true at once. Banks keep cash on deposit at the Fed, called reserves, and that pile fell to $2.895tn in the week to September 2, the lowest in 39 weeks. It fell because the Treasury Department, which borrows the money the government spends, has built its own account at the Fed up to $967.9bn, a four-month high, and every dollar the Treasury holds there is a dollar not in the banking system. There used to be a cushion. The Fed's overnight facility for spare cash, where lenders park money with the Fed against bonds put up as security, absorbed drains like this from 2022 to 2024. It is now down to $626mn, empty in all but name. With no cushion left, keeping overnight interest rates inside the Fed's target range means the Fed has to add to what it owns, whatever it decides about the policy rate. So the plausible autumn picture is a Fed that raises rates, a Fed that buys short-term government IOUs, and a Treasury that buys back government IOUs that do not come due for twenty or thirty years at up to $14.5bn a week. None of that contradicts itself. The difficulty is what it looks like. Chair Kevin Warsh told the Jackson Hole conference two weeks ago that the Fed's balance sheet, the list of what it owns and owes, should be reserved for genuine crises and otherwise used sparingly, if at all. A restart labeled 'technical' three months later will be read by some as exactly what he said he would not do. The market has priced half of this. Three-month government IOUs pay 3.91%, already above the 3.62% that banks pay to borrow cash overnight against bonds put up as

Private credit and BDCs13 Sepmedium

The market is selling the lenders' owners, not their loans

The firms that run private lending funds have fallen 10 to 17% while the funds themselves have fallen 2 to 7%, which means the market is pricing a stall in new money rather than loans going bad, and the two prices eventually have to agree.

The shares of the firms that run private lending funds have fallen far harder than the funds they run, and that gap is the most precise statement about the business in front of us. Blue Owl is 16.6% below its recent high, Blackstone 13.9%, KKR 12.3%, Ares 11.9%, Apollo 9.8%. The funds those firms manage, which borrow money, lend it to mid-sized private companies and pass the interest to shareholders (the trade calls them BDCs), are down a fraction of that: Ares Capital 2.3% off its high, Blackstone Secured Lending 2.4%, Golub 4.6%, FS KKR 5.9%, Blue Owl's OBDC 6.7%. Shaky companies are paying 2.7 percentage points more than the government to borrow, which is not a level that says lenders are frightened. The two prices measure different things. A fund owns loans, so its price reflects how many of those loans investors expect to go bad. A manager earns fees on the money it raises and runs, so its price reflects whether that pile keeps growing. The split says the market thinks the loans are roughly all right and the growth machine has stalled. This week's data supports the second half plainly: money raised by the private lending funds sold to retail savers is down 82% on a year ago, and Blackstone's BCRED has limited withdrawals to 5% a quarter for the second quarter running (sweep). Retail money was the engine. It has slowed sharply while money leaving runs at the limit. The first half, that the loans are roughly all right, is more contested. KBRA, a firm that grades how likely borrowers are to pay you back, finds the typical fund now has 2.75% of its loans no longer paying interest, up from 1.81% a quarter earlier. Octus, counting in dollars across 173 funds, finds the total of such loans fell to $9.5bn from $10bn. Both can be true if trouble is spreading across more small funds while a few large ones improve, and the market has already sorted funds that way: nine that trade above the value they put on their own loans carry 0.9% of loans not paying on average, while ten trading more than 30% below that value average 2.6%. Houlihan Lokey finds 11.8% of loans took at least some of their interest as an addition to the debt rather than in cash in the second quarter. Among borrowers earning $10–20m a year before interest and tax, 12% of loans are carried by the funds at less than 90 cents on the dollar, from around 1% before. One first-quarter number we cannot ignore: 53 listed funds were, taken together, unprofitable, paying out more in dividends than they earn

Bond market dysfunction13 Sepmedium

Every country's long-term bonds are falling at once

When long-term government bonds sell off everywhere at the same time, money has nowhere safer to run, so the usual limit on any single market's fall disappears, and a fix that only works on US bonds, like the Treasury's buybacks, is too small by design.

Long-term government borrowing costs hit multi-decade highs in Britain, Japan, Germany and the United States in the same week, and the fact that they moved together is the story. Britain's thirty-year bond paid 5.948% on Friday and its twenty-year 5.895%, both the highest since 1998; its ten-year, at 5.378%, is the highest since 2007. Japan's ten-year touched 3% for the first time since 1996. German government bonds pay the most they have in fifteen years. Across the G7, two-year rates rose about 0.2 percentage points on the week and ten-year rates nearly 0.18, with France's ten-year up 0.24, and European government bonds had their worst week since March (sweep). In the US the ten-year closed at 4.975% and the thirty-year at 5.354%, and the Treasury Department's first expanded buyback found sellers for only $5.19bn of the $6bn it advertised. A buyback that cannot fill is unusual; the point of announcing one is that people queue. The mechanism worth understanding is what happens when everything moves together. In a local selloff, a French budget scare or a wobble in British bonds, money moves into another government's bonds and the fall limits itself. When every country's long bonds sell at once there is nowhere for that money to go, so whoever is still buying demands more of the extra interest lenders want for tying money up for a long time, everywhere, and the usual ranking of safe places breaks down. That is why bonds issued by French banks and secured on their loans now pay less than the French government itself (our last headline), and why Bloomberg's credit desk is calling company debt 'a haven'. It also reframes the Treasury's buybacks: $6bn a week aimed at a domestic symptom of a global cause. Japan is the leg to watch. The FT reports traders pricing a 75% chance the Bank of Japan raises rates to 1.25% next week and expecting another 0.5 percentage points by January; the yen has recovered from ¥164 to the dollar to about ¥154 on that and on the joint intervention of July and August. Our inference, not the FT's: a Japanese investor who can earn 3% at home has less reason to hold US government bonds at 5% and carry the risk of the currency moving against them, which is one reason the world's largest foreign holder of those bonds has been a seller (see the rumor mill). Norway's sovereign wealth fund has said it is reducing its holdings too (Axios). What we do not have is any sourced read this week on whether the big banks that trade these bonds are run

The AI capex bubble12 Sepmedium

Ellison cancels a $7.5bn sale. 346mn shares still stand behind his loans.

When a stock that secures roughly $52bn of one man's personal borrowing halves, his decision not to sell is as much a question about the lenders holding that security as about his confidence, and the filing does not say which.

Oracle said on Saturday that Larry Ellison, its founder, will not sell any stock under a plan disclosed only the day before, which would have let him sell up to 50mn shares by the end of October, about $7.5bn at Friday's $150 close (FT). Plans like this are set up months ahead so a seller cannot be accused of trading on news; this one was set up in late June, and pulling it a day after disclosing it is not the usual sequence. The company declined to say why he changed his mind. A person close to him says he considers the shares undervalued. Oracle's stock has fallen by more than half since it disclosed a $300bn deal with OpenAI, and Thursday's results showed revenue from its data centers up but profit margins still shrinking. It closed Friday down 1.8%, 7.5% off its recent high. Of the giant companies building the data centers behind AI, Oracle is the one paying for its buildout most heavily with borrowed money, which is why it is on our list of AI construction spenders. The detail that belongs here is further down the story. Ellison owns 40% of the company and, as of September 2025, had put up 346mn shares as security for personal loans. A loan against shares has the same shape as any loan against a bet: the lender advances cash worth some fraction of the shares, and when the shares halve the borrower hands over more shares, hands over cash, or gets sold out. At Friday's price the block he pledged is worth roughly $52bn, by our arithmetic and on a count that is a year old. The shareholder filing does not say how much he borrowed against it or what fraction of its value the lenders advanced, and nothing published since says whether the count has changed. In December he also agreed to personally stand behind the $40bn of equity financing for his son's hostile bid for Warner Bros Discovery, now frozen until as late as June. Two readings fit the facts. One is a founder signaling confidence by refusing to sell into weakness. The other is a holder who cannot easily sell 50mn shares into a market that would immediately ask about his loans. The reporting does not settle it. What it does show is concentration stacked on concentration: the AI builder most dependent on borrowed money has a controlling shareholder whose own borrowing rests on the same stock, in a form nobody has to put a public price on. None of this is a spark. It is measurement: the pledge is a year old and the stock had halved before Saturday. It stays in the fragility pile because a lender demand

Household credit11 Sephigh

Britain removed a mortgage brake. Borrowers used it.

Lifting a cap on how many big mortgages a lender may write produces exactly the pile of oversized loans it was designed to prevent, on the borrowers with the least of their own money in the house, just as long-term rates hit multi-decade highs.

The number of British first-time buyers borrowing 4.5 times their income or more jumped 66% to 45,800 in 2025, and loans above 5.5 times income rose tenfold to 4,628, according to data the FT obtained under freedom-of-information law from the FCA, which polices British financial firms. That happened because a brake was removed on purpose, and the borrowers who used it are the ones with the least room for error. Coventry Building Society this month started offering 6.5 times income to first-time buyers earning at least £30,000. Nationwide's six-times product saw a 57% rise in loans at five times income or more and a fivefold rise above 5.5 times. The rule that changed is worth being precise about. In 2014 the Bank of England's committee for financial stability capped loans at high multiples of income at 15% of each lender's new mortgages. That was a limit on the flow, not a ban on any single loan: it stopped lenders competing on how many times your salary they would lend. In July 2025 it was relaxed for first-time buyers. Within a year the response is visible in the data, which is roughly what lifting a cap on the flow should produce. A broker quoted by the FT calls this 'positive'; another says buyers 'will do it if it means they can get on the property ladder'. Two things follow. First, the highest multiples are being concentrated on the youngest borrowers with the smallest stake in their own homes, the group with the least room if income or rates move against them. Second, the timing. The British government's ten-year borrowing rate is at its highest since 2007, and British mortgage rates move with it. The data does not say what rate these loans were tested against, or how a borrower on 6.5 times income at today's fixed rate copes when the fixed period ends and they have to borrow again in a few years. In absolute terms 4,628 loans is small. The direction is the point, and it cuts against our usual story. This is not risk migrating out of the regulated system into somewhere nobody prices it. It is a central bank deliberately putting household borrowing back onto the books of banks and building societies, where it can at least be measured. It is also a decision made before British borrowing costs went back to 1998 levels. On the meter this adds a little to fragility, slowly, and brings no spark closer; it is the kind of thing that decides how bad a downturn gets rather than whether one starts.

Signs of the times

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

The Dutch central bank pulls 86 tons of gold out of North America

The Netherlands moved 86 tons of gold out of the United States and Canada last week, calling it a hedge against 'extreme systemic risks'; France has already taken all of its gold out of New York and Germany is debating it. Central banks do not move their gold lightly, and an allied one now talks about keeping it in America the way it used to talk about keeping it in a developing country.

goldreserve statuscustody

12 SepAxios

Borrow $1bn to rent Nvidia chips to Microsoft

Lambda raised $1bn of debt from investment funds rather than banks to buy Nvidia's AI chips and rent them to Microsoft. Those funds now sit between the chip maker and one of its richest customers, earning a margin the two of them chose not to keep on their own books.

neocloudvendor financingprivate credit

13 SepWeb sweep (citing Reuters Breakingviews)

The largest stock market listing ever, anchored by its chip supplier

Anthropic is seeking to raise as much as $100bn at a valuation of roughly $2tn, and Nvidia is in talks to anchor the offering with up to $10bn; Amazon and Google, which supply most of its computing power, are already shareholders. A company's three largest suppliers would also be among its largest owners.

ipocircular financingvaluation

12 SepBusiness Times Singapore (Reuters)

Twenty-one institutions, one dollar token, 2027

Goldman Sachs, Bank of America, Citi and Deutsche Bank are among 21 financial institutions planning a digital token meant to be worth exactly one dollar, for launch in 2027, in the same week the EU's markets regulator ESMA named the links between crypto and ordinary finance a channel through which trouble could spread, and Nasdaq put $100m into Kraken's parent company to trade shares as digital tokens. The regulators are warning about the bridge while the banks pour the concrete.

stablecoinstokenisationbanks

12 SepWeb sweep (cryptal.com)

The rumour mill

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

Confirmed

“Treasury Secretary Bessent proposed expanding the Fed's FIMA repo facility so countries like Japan can obtain dollars against their Treasury holdings without selling US debt.”

Bessent did ask the Fed to enlarge the facility through which foreign central banks borrow dollars against the US government bonds they hold (FIMA), and to lift its $60bn daily limit, after Japan said it would use the facility following its July 31 intervention. The point of the facility is to let a foreign central bank raise dollars without selling US government bonds into a market that is already struggling to absorb them.

Claimed by ITM Trading (Daniela Cambone)

Partly true

“Japan holds over a trillion dollars of US Treasuries and, facing an accelerating currency crisis, is increasingly tempted to sell them for cash.”

Japan holds about $1.1tn of US government bonds and its holdings have fallen roughly $123bn from a February peak, with the proceeds linked to propping up the yen. That is selling, and it is large. 'Accelerating currency crisis' is not how the reporting describes a yen that has recovered from ¥164 to ¥154 to the dollar.

Claimed by ITM Trading (Daniela Cambone)

Partly true

“South Korea is buying gold for the first time in 13 years while dumping US Treasuries and reducing its dollar holdings.”

The Bank of Korea's first gold-linked investment in 13 years is 679,765 shares of the SPDR Gold Trust, worth about $250m: a fund that trades on the stock exchange and tracks the gold price, not bars in a vault. US government bonds held for foreign central banks at the New York Fed are at their lowest since 2012, but the 'dumping' is not established for Korea specifically.

Claimed by Palisades Gold Radio

Partly true

“The Fed chair said short-term rates are the tool for getting inflation to 2% and that the balance sheet should be reserved for crises only and used extremely sparingly.”

Accurate in substance, and attributable: Kevin Warsh said it at Jackson Hole on August 28. It matters this week because John Williams now says the Fed is 'getting closer' to restarting bond purchases, which it calls technical.

Claimed by Heresy Financial

Earlier developments

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

Bond market dysfunction12 Sephigh

France's banks now borrow more cheaply than France

When investors decide a pool of home loans is safer than the government, the borrowing rate everything else in the system is priced off has stopped being the floor.

Investors are now lending to French banks, against pools of ordinary French home loans, at a lower interest rate than they charge the French government. These bonds, known as covered bonds, pay almost 0.3 percentage points less than ten-year French government bonds, the widest gap of its kind Bloomberg has on record. Four months ago the two paid roughly the same (Bloomberg). That is not supposed to happen: in every country's bond market the government is meant to be the cheapest borrower there is, and everyone else pays a little more. Why that is the rule takes one sentence. The government taxes, and it prints money (or its central bank does), so every other borrower's cost is built as a step above its rate. A covered bond is a bank's promise to pay, with a ring-fenced pool of mortgages behind it if the bank fails. It is very safe. It is not supposed to be safer than the state that regulates the bank, guarantees its deposits and taxes the people paying the mortgages. Bloomberg puts the move down to France's budget deficit, the rising cost of servicing its debt and the presidential election in April. Part of it is mechanical. Covered bonds come with regulatory privileges (they rank ahead of other creditors, they have assets pledged behind them, and payments are protected from interruption) that make them scarce and prized by banks, which must hold a stock of very safe assets, so demand can outrun supply for reasons that are not a pure verdict on the Republic. Nothing in the price separates the two. But it lands in a week when the same question was put to three other governments. The US Treasury Department bought back its own long-dated bonds and its borrowing rate rose anyway while it was doing so; the rate Britain pays to borrow for thirty years touched 5.95%, its highest since 1998; Japan's ten-year rate hit 3% for the first time since 1996. The common thread is governments borrowing more just as energy-driven inflation pushes central banks toward raising rates. France is where the market has gone furthest in saying so, and Bloomberg calls it 'a harbinger of trends worldwide.' For the odds of a crash, this is a measurement rather than new tinder. We already count France's finances as stressed; the market has now said the same thing in a form it never had before. What would make it benign: a normal gap reopening after the election. What would make it serious: the same inversion showing up in Italy or Britain.

Private credit and BDCs11 Sephigh

$20bn of insurer loans nobody labeled

Insurance companies hold the largest pile of private loans that nobody prices, and the first regulator to ask what is in the pile is a senator, not the officials paid to supervise them.

Two life insurers owned by Mark Walter, Delaware Life and Clear Spring Life and Annuity, disclosed earlier this year that more than $20bn of loans on their balance sheets (the list of what they own and owe) should have been labeled as deals with companies connected to their own owner, and were not. The Justice Department and the SEC, the agency that polices American markets, are now investigating his businesses. Senator Elizabeth Warren has written to the National Association of Insurance Commissioners, the club of state officials who regulate insurers, asking how they police Wall Street firms' influence over the insurers they own and the private loans those insurers make (Bloomberg). The oddity is not the investigation. It is that the question came from a senator before it came from a supervisor. The machinery here is the center of what this site watches. A life insurer sells annuities, policies that pay a saver a monthly income for the rest of their life, collects the money up front, and invests it because it will not have to pay out for years. If the insurer is owned by an investment manager, the tempting place to put that money is into loans the manager itself arranges: lending to companies by investment funds rather than banks, at rates the public market does not offer. Those loans are carried at what the insurer paid for them, not at what they could be sold for today; the regulator is a patchwork of state commissioners rather than the Federal Reserve, America's central bank; and the person holding the annuity cannot pull their money out. It is, structurally, where risk goes to avoid being measured. Lending to a company tied to your own owner is not banned. The rules require you to say so, because that is the one loan where the lender's judgment is most compromised. $20bn undisclosed at two insurers is a failure to label, not a loss: nothing in the reporting says the loans have gone bad. Warren's question is the right one, and it is whether this is two firms or a pattern. The NAIC says it 'looks forward to sharing' how it oversees insurers' exposure to private lending. The stock market has given its answer through one company. Apollo, the listed firm that most openly runs private lending through an insurance balance sheet, is down nearly a tenth from its high (9.8%) and 4.1% on the week, while the extra interest shaky companies pay over the government has barely moved. For a crash, nothing got more dangerous this week. The loans were signed long ago;

Hidden leverage and shadow banking11 Sepmedium

Bets on Nvidia that never expire, filed as soon as next week

Borrowed money used to make bets bigger does not disappear when a bank pulls back. It moves to venues with thinner supervision, and this is the clearest map yet of the next one.

Kalshi, the platform where people bet on elections and other events, will file as soon as next week for approval to list the first perpetual futures on individual stocks in the United States, starting with contracts on Tesla, Apple and Nvidia. It wants two regulators, the CFTC, which polices derivatives, and the SEC, which polices markets, to oversee them jointly as a security futures product, and plans to add farm commodities and exchange-traded funds later (Bloomberg). Nobody in America has been allowed to offer this before, and the question of which regulator owns it has not been answered. A perpetual is a bet made with borrowed money that never has to be closed. An ordinary futures contract settles on a fixed day; a perpetual never does, so a position can be held on borrowed money indefinitely with no expiry to force a reckoning. Bloomberg notes the contracts have become increasingly popular. That popularity was built on offshore crypto exchanges, where perpetuals became the standard way for small investors to bet with borrowed money, and Kalshi's chief executive Tarek Mansour says it is 'about time that these products come to the US, under a regulated umbrella.' What matters for us is the route the money takes. Borrowing to buy stocks is governed by Federal Reserve rules and runs through brokers whose exposure regulators can see. A perpetual on Nvidia listed by a venue that began with election bets is the same borrowing routed through a derivatives exchange instead. The filing does not say how much borrowing it will allow, how it will demand extra cash when bets go wrong, or which firm would stand behind the contracts if one side cannot pay. The context is a week in which JPMorgan cut off lending to the investment fund Situational Awareness and the fund rebuilt its borrowed position through options at a smaller broker (FT). That was one fund finding a new door after a bank shut one. Kalshi's proposal is the same thing for millions of ordinary investors. This is a filing, not a product. It moves the odds of a crash by nothing today. What it does is show where borrowed money is trying to go, and that is the slow kind of risk, tinder rather than spark.

Household credit12 Sepmedium

7.5 million borrowers, one deadline, 18% have moved

Millions of student borrowers hit a scheduled jump in payments just as the stock market is selling the lenders to better-off households, not the ones lending to the riskiest.

The Education Department is moving 7.5 million people with federal student loans off a repayment plan called SAVE, which no longer exists. Anyone who has not picked another plan within 90 days of being told will be dropped automatically into the standard plan: the whole balance split into fixed payments over ten years. Nearly half of the people on SAVE had incomes low enough to qualify for a $0 monthly payment. The first 90-day window closes on September 29, and so far about 18% have moved (Washington Post). That leaves several million people who have paid nothing for two years a few weeks from a bill set as if their loan were a ten-year mortgage. Borrowers describe conflicting information, missing payment histories and a broken calculator for working out what each plan would cost; the department says the glitches are largely fixed. Three quarters have been notified; the rest will hear by year-end. This arrives on top of a household sector that has just set its first record of this cycle. One in eighteen car loans is now three months behind, the worst in the New York Fed's records and above the peak of 2009 (5.5% in the second quarter), though we have that from a secondhand summary we have not been able to check against the original release. Among the riskiest borrowers, the share two months behind on a car loan peaked at 6.9% in January and has since eased to 5.8%. The stock market has a view, and it is a specific one. Capital One is down 5.5% on the week, Synchrony 4.7%, Ally 3.5%, Affirm 3.9%. Credit Acceptance, which lends to the riskiest car buyers of all, sits 0.7% off its high. Read literally, that is investors saying the trouble is moving up the income scale, into people with decent credit, rather than down into the poorest borrowers, whose bad stretch is already priced in. A payment shock landing on people who were paying $0 fits that reading uncomfortably well. For a crash this is the slow kind, a little more strain on households, and the thing the announcement does not say is how many of the 7.5 million will simply not pay.

The AI capex bubble12 Sepmedium

AI companies borrowed two thirds as much long-term money as the US government

Building AI data centers is no longer just a bet on demand. The borrowing to pay for it is large enough to push up the government's own borrowing rate, which is the rate the bet is judged against.

Companies building artificial intelligence have sold nearly $500bn of debt so far in 2026, through early August, by Goldman Sachs's count. That is about a fifth of all the bonds sold this year by better-rated American companies, up from 1% in 2024. The six largest cloud-computing companies alone have issued roughly $320bn of long-term debt and related financing. JPMorgan's Michael Cembalest converts that into the equivalent of about $303bn of ten-year bonds and notes it equals roughly 68% of the new long-term borrowing the US government itself has done this year (Reuters Breakingviews via web sweep). Half a dozen companies are borrowing on a scale that competes with Washington. These are measurements, not new risk. The bonds were sold months ago and we have counted AI debt in fragility all summer. But the 68% figure names a mechanism we had not stated plainly. Long-dated company bonds and long-dated government IOUs compete for the same buyers: pension funds, insurers, foreign governments parking their reserves. When a handful of companies borrow two thirds as much long money as the US government, they are not just borrowing; they are bidding up the cost of long-term money for everyone, the Treasury included. The FT's account of this week's selloff lists 'a flood of supply from tech companies' alongside oil and record government borrowing as a driver of interest rates worldwide (FT). Amazon alone has raised around $100bn in the bond market this year. The shape of the borrowing is shifting too. Goldman expects debt to fund 33% of AI building spend this year and 35% next. Reporting this week describes data centers financed through separate companies set up to hold them off the parent's books, in which the cloud company owns 20% and investment funds or bond investors supply 80%, with the lease ultimately resting on the parent. Whether those leases sit on the parent's balance sheet, the list of what it owns and owes, is the question the filings do not answer. The circle closes at the top. The ten-year US government borrowing rate, at 4.975%, is the yardstick every AI profit forecast is measured against, and the borrowing that justifies those forecasts is one of the things pushing it up. Nothing here moves the odds today; it is tinder we already counted, now weighed more carefully.

Private credit and BDCs12 Sepmedium

Two ways to count bad loans, two answers

In a market where nobody has to say what their loans are worth, choosing which bad-loan statistic to publish is itself a way of saying it.

Second-quarter figures for BDCs, funds that borrow money, lend it to mid-sized private companies and pass the interest to shareholders, now contradict each other. KBRA, a firm that grades borrowers, reports that at the typical fund the share of loans on which interest has stopped arriving jumped to 2.75% of what the loans cost from 1.81% in the first quarter. Octus, scanning 173 of these funds, finds the dollar amount of such loans fell, to $9.5bn from $10.0bn, or 1.9% of total cost versus 2.02% (web sweep). Both are secondhand summaries, so treat the exact figures with care. The lesson is in the disagreement itself, because in this market nobody is forced to say what a loan is worth, and the statistic you pick does the job a price would. A bad-loan ratio can fall without a single borrower getting better, and there are three ways it happens. First, write-off: a loan marked down to 5 cents on the dollar, as Blue Owl's OBDC marked a company called Loparex, eventually drops out of the count entirely. Second, the denominator drifts: Ares Capital reports bad loans at 2.4% of what they cost but 1.4% of what it says they are now worth, and the gap exists precisely because bad loans shrink as a share of the portfolio once they are marked down. Third, amendment: a borrower who cannot pay cash interest is allowed to pay by adding to the debt instead, and the loan stays 'performing.' Houlihan Lokey's second-quarter data show 11.8% of these loans by size chose that route, with 'amended PIK', meaning the option was added after the loan was made, which is the closer sign of stress, at 1.6% of interest dollars. The typical fund getting worse while the total gets better says the trouble is concentrated in smaller funds and smaller borrowers. Houlihan finds 12% of loans to companies earning $10–20m a year before interest, tax and depreciation are valued below 90 cents on the dollar, up from around 1%. Morningstar puts $772m of interest income at risk against $38bn of cash interest across the sector, which is small, so far. We already carry these marks in fragility, so this moves the odds very little. What is new is the demonstration that the headline number a manager chooses to report can go either way from the same set of loans.

Hidden leverage and shadow banking11 Sephigh

JPMorgan closed the credit line. Clear Street opened one.

When the big regulated bank says no and the same bets reappear through a smaller firm, the borrowed money has not gone anywhere. It has moved to where fewer people can see it.

JPMorgan has stopped lending to Situational Awareness, the hedge fund run by Leopold Aschenbrenner, after the largest loss in that industry's history, the FT reports. A hedge fund is an investment firm that manages money for the wealthy and can bet in ways ordinary funds cannot, and the bank that lends it the money for those bets and holds them is called its prime broker. The fund has begun working instead with Clear Street, a specialist broker the FT describes as “far smaller” than JPMorgan. The bank walking away is the part that is supposed to happen. The fund finding a new lender within days is the part that matters. Morgan Stanley had talks with the fund since it launched and never opened an account. Goldman Sachs and Citigroup have had relationships with it. Read that first as the system working. A prime broker is where a fund's borrowed money comes from and where it gets measured: the bank decides how much cash the fund must put up against each bet, sees the whole book and can shrink the loan whenever it likes. JPMorgan looked at a fund that went from more than $45bn to about $10bn in July and decided not to be the lender standing behind the next attempt. Then read what happened next. Per CNBC, Situational Awareness spent late last week and early this week buying options, contracts that give the right to buy a share at a fixed price later, on AMD, Bloom Energy, CoreWeave, SK Hynix, SanDisk and the Roundhill Memory ETF, a fund that trades like a single share. CNBC could not establish whether that is new money or what was left after the fire sale to Citadel. Options are borrowed money with the borrowing built into the price of the contract, and the dealer who sells them protects itself by buying the underlying shares. So the exposure to those companies is back, routed through a smaller firm and the traders who sell such contracts rather than through a bank credit line. Clear Street's terms, how much cash it demands the fund put up, are not public, and neither is how much of the remaining $10bn is at work. What can be said is that the best-capitalized lender in the chain stepped away and the position was rebuilt anyway. That is the migration this site exists to track, in miniature and with a name attached. It adds nothing new to the pile; it moves part of the pile to where it is harder to see, which is a fragility story rather than a spark. The names on the ticket are memory chips, and on those, see the next dispatch.

The AI capex bubble11 Sepmedium

DeepSeek trims the memory bill. Memory makers fall.

Roughly $500bn of borrowing for AI this year rests on the assumption that computing power stays scarce. A model that needs less of the scarcest component attacks that assumption directly.

DeepSeek released V4.1 Flash on Thursday, a model it prices at a fraction of a cent per million tokens (the chunks of text a model reads and writes) and says beats Moonshot's Kimi K3. MiniMax and Z.AI fell more than 8% in Hong Kong, and Alibaba slid more than 2% (Business Times, citing Bloomberg). The share prices are not the reason to care. The reason is that DeepSeek says its model needs less of the one component the entire AI buildout is short of. The damage in Hong Kong is the smaller story. The larger one is a design detail. DeepSeek says it has trimmed the model's KV cache, the working memory a model keeps while it is generating, which cuts the high-bandwidth memory and solid-state storage needed to run it. It also says the model, which has 552bn parameters (the internal settings that hold what it has learned), switches on only a tiny part of its capacity at a time. High-bandwidth memory is the tightest bottleneck in the AI build. A chronic shortage of it has driven profits at Micron and SK Hynix, and it is one reason the money the biggest cloud companies spend building things is assumed to keep rising. Microsoft's spending hit $145bn in its last fiscal year, and Bloomberg reported plans to reach 38GW of data-center capacity by 2032, a figure Microsoft called inaccurate. A model that needs less of the scarcest input is a shock to demand aimed at the one place in the supply chain where the seller sets the price. Two cautions, both ours rather than the reporting's. Cheaper AI has historically increased total usage, so less memory per token need not mean less memory in total. And DeepSeek's benchmark claims are DeepSeek's. But the fund in the previous dispatch bought options on SK Hynix, SanDisk and a memory fund in the days before this release. Nvidia is down 4.4% on the week. Anthropic and OpenAI are preparing to sell shares to the public into a price war in which “good enough and nearly free” is the competitor. The AI building spree has always required that computing power stay scarce. This is what a test of that assumption looks like, and the US memory companies have not yet had a trading day to price it. Nothing has broken, so this is not a spark. It is the first serious test of the assumption underneath a very large pile of debt.

The AI capex bubble11 Sepmedium

Nvidia may anchor its own customer's $100bn share sale

A supplier funding its customer by buying shares is safer than doing it with loans, but it still means the customer's price tag and the supplier's balance sheet rise and fall together.

Nvidia is considering putting as much as $10bn into Anthropic's IPO, its first sale of shares to the public, as the anchor investor, the large buyer who commits early so that others follow, Reuters reported and Bloomberg relayed. Anthropic is seeking to raise up to $100bn at a valuation around $2tn, which would be the largest such sale ever. Anthropic spends much of its money on computing that runs on Nvidia chips, so the supplier would be putting up the money that pays for its own customer's purchases. Anthropic raised $65bn in May at a $965bn valuation; OpenAI raised $122bn in March at $852bn. The plans are under discussion and neither company commented. If Nvidia takes a tenth of the sale, that is the circle we have been tracking in loan form, now appearing in share form. The loan form: Nvidia guaranteeing its customers' leases, and the $500bn of outside capital pools announced so customers can “independently underwrite” infrastructure. Shares are the more honest version. They never have to be repaid and there is no due date to borrow again for. But it means Nvidia's balance sheet, the list of what it owns and owes, would carry a stake in a five-year-old company valued at the IPO price, and that price would be set partly by the anchor's willingness to pay it. The valuation has doubled in four months. Whoever buys the other $90bn (index funds, pensions, the Goldman and BofA wealth desks Bloomberg says are competing to manage Anthropic employees' proceeds) buys at a level a supplier helped set. One further connection. Situational Awareness sold its public holdings to Citadel in July but kept its private stakes, including Anthropic. A share sale at $2tn is a chance to turn that stake into cash, and the fund badly needs one. None of this is a loss, and none of it is hidden. It does not make a crash more likely this week. It is a measure of how much of the AI complex's money now comes from inside the AI complex, and how few independent buyers are setting the prices. That is tinder, not a spark.

Household credit11 Sephigh

Six and a half times income, at rates last seen in 1998

Loosening the limit on how much people can borrow, at the moment interest rates are the highest in a generation, puts the risk of a payment jump on the households least able to absorb it, in plain sight and with the regulator's blessing.

The number of British first-time buyers borrowing more than four and a half times their income rose by two thirds last year, to 45,800 (a 66% rise in 2025, according to data from the FCA, the regulator that polices British financial firms, obtained by the FT). Loans above five and a half times income rose tenfold, to 4,628. Coventry Building Society this month began lending 6.5 times income to first-time buyers earning at least £30,000. Nationwide's Helping Hand product, which goes to six times, saw a 57% rise in loans at or above five times income. Loans this large were until recently rare enough that the central bank limited them, and they are being written at the most expensive moment in a generation. The cause is a rule change. In 2014 the Bank of England, Britain's central bank, capped loans that large at 15% of all new mortgages; in July 2025 it loosened that for first-time buyers. The response took a year. A multiple of income is really a question about the monthly payment. At 6.5 times, a household on £30,000 owes £195,000, and whether that is affordable depends entirely on the interest rate. British fixed-rate mortgages typically reset to a new rate after two to five years. These loans are being written while the interest rate the British government pays to borrow is the highest since 1998 (the thirty-year rate sits at 5.89%, and the ten-year above 5.37%). So the borrower with the thinnest cushion is being handed the most rate risk at the top of the cycle. This sits beside our running thesis rather than inside it. The risk is not hidden: it is on the books of regulated building societies, and a regulator chose it. 45,800 loans is not a number that can bring down a system. But a policymaker deciding that first-time buyers should carry more debt, at the moment the price of that debt is the highest in a generation, is the kind of decision that looks obvious in hindsight and unremarkable in the trade press. The brokers quoted by the FT called the trend “positive”. It adds a little to the pile and nothing to the spark.

Fed, Treasury and policy12 Seplow

The Treasury buys the long bonds. The Fed edges toward the short ones.

Banks running short of spare cash, while the Treasury is already stepping in to buy long-dated bonds, leaves the central bank less room to raise rates without breaking something in the short-term cash markets that keep trading desks running.

John Williams, who runs the New York branch of the Federal Reserve, America's central bank, which sets interest rates, said this week the Fed is “getting closer” to restarting bond purchases in order to keep the banking system supplied with cash, that the shrinking of its holdings will halt in December, and that banks should use the Standing Repo Facility freely, according to market commentary summarized here. That facility is the Fed's backstop window for lending banks cash overnight against bonds put up as security. The same source puts use of the opposite facility, where banks and money funds park spare cash with the Fed overnight, at $626mn on September 8, down from $702mn on September 3. The Fed's total holdings stood at $6.7tn on September 2. A central banker inviting banks to lean on a backstop is not a weekly occurrence, and it matters because two arms of the government are now moving toward buying government debt at once. We have not seen the speech text and this is a single second-tier source, so hold the specifics loosely. The mechanism is not in doubt. The parking facility is the overflow tank: when banks and money funds have more cash than they want, it sits there. When it is nearly empty, every dollar the Fed lets roll off its holdings comes directly out of the cash banks keep at the Fed, and the lending window becomes the pressure valve. A central banker telling banks to use it “freely” is saying the tank is empty before the pipes groan. Put that beside the Treasury Department, which borrows the money the government spends. It began an expanded program of buying back its own bonds this week, with weekly limits reported at $14.5bn, and its first large operation bought $5.19bn of a $6bn maximum while interest rates rose (FT). The Treasury buys the government IOUs that do not come due for twenty or thirty years and pays for them by selling short-term ones. The Fed, if Williams is right, will soon buy those short-term IOUs to top up bank cash. Two arms of the state buying their own paper at both ends, both insisting it is technical. Perhaps it is. Buying bonds to manage the cash in the system is not the crisis-era program known as QE, and Williams was careful to say so. But the Fed is being pushed toward buying at the moment traders put roughly 70% odds on it raising rates on September 16. A central bank raising the price of money while adding to the quantity of it is not an emergency. It is the position a central bank finds itself in when the g

Private credit and BDCs12 Sepmedium

The market has already sorted the private lenders

The gap between the falling shares of the firms that run these funds and the unchanged price of risky debt is the clearest measure we have of how much of private lending's value rests on nobody challenging the prices the funds put on their own loans.

Nine of the funds that borrow money, lend it to mid-sized private companies and pass the interest to shareholders (BDCs, a name that will recur) trade for more than their holdings are said to be worth, and they carry average non-accruals, loans the lender has stopped counting the interest on because it stopped arriving, of 0.9% of assets. Ten trading at more than a 30% discount to their stated worth average 2.6%, per a sector analysis summarized here. Investors, in short, have already decided which of these funds to believe. Morningstar estimates $772m of interest at risk from borrowers who have stopped paying, against $38bn of cash interest across the sector, about 2% of the income stream. KBRA, which grades borrowers, found the typical rate of stopped loans at fixed-life BDCs was 2.75% of cost in the second quarter, up from 1.81% in the first; among the twenty largest it is the highest since 2017. None of that is new risk; it is second-quarter data being published, so our measurement of the problem improved rather than the problem growing. What the numbers describe is a sorting. The discounts line up with the stopped loans, which is either the market being efficient or a prophecy that fulfills itself, since a fund trading at a 30% discount cannot sell new shares to grow its way out of trouble. The Loparex loan shows why a 1% figure earns little trust on its own. OBDC said its second-ranked loan to the company was worth 88 cents on the dollar at the end of 2025, 63 cents in March, and about 5 cents now (matterfact). Blue Owl's BDC has traded at a 22–25% discount all year while reporting stopped loans near 1%. Glendon Capital flagged “inconsistencies” in the prices the funds put on their loans earlier this year. Now look at where the price damage is. The funds themselves are down modestly: ARCC 2.3% off its high, BXSL 2.4%, OBDC 6.7%. The firms that run them are down far more: Blue Owl 16.5% in 20 days, Blackstone 13.9%, KKR 12.3%, Ares 11.9%. The debt of companies too shaky to be considered safe pays 2.7 percentage points more than the government, and HYG, the big fund that holds that debt, is 1% off its high. So investors are not yet pricing loan losses. They are pricing the fee stream, meaning fundraising, growth in money managed, and a queue of withdrawal requests at one fund, BCRED, running at 10% against a 5% cap on what it will pay out, all of which depends on nobody looking too hard at the loan prices. That is a bet on the business model, made in t

Bond market dysfunction10 Sepmedium

Five per cent, and the stock market bought the dip

Rates at the highs with volatility collapsing is the market saying 5% is fine; whether it is fine is a question about the plumbing, not the tape.

The 10-year Treasury closed Friday at 4.975%, up from 4.94% on Thursday and the highest close in our eight-run trail. The 30-year settled at 5.354%, a touch below Thursday's 5.37%, which was a 19-year high. The three-month bill and the five-year both rose. And the S&P 500 gained 0.9%, the Nasdaq 100 gained 1%, and VIX fell 11% to 15.8. The proximate cause on the rates side was inflation: the August CPI, released Friday, put core at 0.3% for the month against a consensus clustered at 0.2% — a claim we checked and confirmed (see the rumour mill) — and Bloomberg had already reported traders pricing roughly 70% odds of a Fed hike next week, with two-year yields jumping 16bp on Thursday, the most since the April 2025 tariff meltdown (Bloomberg). The Treasury's first expanded buyback took $5.19bn of a $6bn maximum; DWS's George Catrambone called it 'a squirt gun to a firefight'. What is odd is the equity response. Stanford's Hanno Lustig, in a paper the Washington Post summarised this week, finds that since 2022 stock and bond prices have moved together — the flight to safety no longer works — and that Treasuries no longer command a premium over top-rated corporate bonds once credit risk is adjusted (Washington Post). Friday did not fit that pattern either: bonds fell and stocks rose, which is what a normal risk-on day looked like before 2022. So the market read Friday as growth, not as a funding problem. Against that: 30-year mortgages at 6.76%, the highest in over a year (WSJ), a net interest bill above $1tn that exceeds defence spending by 16% (Setser, FT), and a 10-year at the round number the FT calls 'an important threshold for Wall Street'. We do not think equities are right about this, and we have said so by holding fragility at 91. But the meter that tracks stress has to record what happened, and on Friday the stress measures fell.

Hidden leverage and shadow banking11 Sepmedium

The fund that lost $35bn in July is buying options

Leverage that was flushed out of the AI trade in July is returning in a form that shows up on dealer books rather than in margin loans.

Situational Awareness — Leopold Aschenbrenner's hedge fund, which shrank from more than $45bn at the start of July to about $10bn after leveraged AI bets went wrong — has been buying options in AMD, Bloom Energy, CoreWeave, SK Hynix, SanDisk and the Roundhill Memory ETF, according to sources cited by CNBC. The trades were placed late last week and early this week. CNBC could not establish whether the fund has raised new money or is deploying what was left after the rout (CNBC). Recall what happened in July. A rapid fall in AI stocks the fund had bought with borrowed money forced it to unwind its public book to Citadel in a fire sale. Jane Street, a market-maker with a stake in the fund, posted a $15bn loss that month — its first losing month in a decade — while Hudson River Trading, with no exposure, made a record $11.4bn (Bloomberg). That unwind was one of the few genuine reductions in system fragility this year. This is it partially reversing. Options change the form of the leverage rather than removing it. A margin loan against stock can be called and the collateral dumped; a bought call has a maximum loss equal to the premium, so there is no forced seller on the way down. But the leverage moves to the dealer who sold the call and hedges it by buying the underlying, buying more as the stock rises — the mechanics that make a concentrated options buyer move a stock more than a cash buyer of the same size. That is our inference about structure; CNBC gives no sizes. The names are the memory-and-neocloud complex: CoreWeave is 17% off its high, Nebius 19%, Applied Digital 16%. A fund whose last leveraged bet shook a market-maker is back in the same trade, in a form that does not get margin-called. The market-maker on the other side now, we do not know.

The dollar, gold and reserve status11 Sepmedium

If Bessent's yen trade works, Japan sells Treasuries

The buyer base that used to absorb Treasuries regardless of price is shrinking, and the policy Washington wants from Tokyo accelerates it.

Japan's Government Pension Investment Fund, a $2tn investor, could sell as much as $62bn of US Treasuries without formally changing its asset allocation, according to Santander analysts. The fund's strategic ranges give its managers enough flexibility to cut foreign bonds 'in the coming months without waiting for a formal strategic asset-mix review' — and, the note says, this is 'especially likely if the Bank of Japan is successful in reversing the weakness of the yen through back-to-back rate hikes' (Bloomberg). Those hikes are arriving. Nikkei reports the BoJ will raise its policy rate to 1.25% on 18 September, the shortest gap between hikes since the cycle began in March 2024 (Nikkei). The 10-year JGB is above 3% for the first time since 1996. A Japanese pension fund looking at 3% at home in a strengthening currency, against 5% in Treasuries it has to hedge or bear the dollar risk on, does not need a policy review to start rotating. The irony is who wanted this. Scott Bessent has spent weeks pressing for a stronger yen and telling bond traders 'I am the house now'; former BoJ officials told the FT his intervention is 'exceptional' and risks the bank's credibility (FT). The trade he is pushing — BoJ hikes, yen up — is the trigger Santander names for Japanese selling of the bonds he is simultaneously buying back. Brad Setser's numbers give the backdrop: price-insensitive holders of Treasuries have fallen from 76% of the market to 43% in nineteen years, and Japan's share from 18% in 2004 to 4% (FT). GPIF is exactly the sort of holder that number describes. Japan is still the largest foreign holder at $1.1tn. $62bn is a Santander estimate, not a decision, and the health minister says the fund is still 'mulling' whether a review is even needed. But the 10-year closed Friday at 4.975%, and this is the marginal seller the price has to find a replacement for.

Crypto and TradFi contagion11 Sepmedium

Perpetual futures on Nvidia, from a prediction market

Leverage on single stocks is being offered a new venue outside the prime-brokerage system where it has historically been counted.

Kalshi, the prediction-market company, will file as soon as next week for permission to list the first single-stock perpetual futures in the United States, on Tesla, Apple and Nvidia to begin with. It wants the CFTC and SEC to regulate them jointly as security futures. Agricultural commodities and ETFs are to follow. 'It's about time that these products come to the US, under a regulated umbrella,' co-founder Tarek Mansour told Bloomberg (Bloomberg). A perpetual is a leveraged futures contract with no expiry. It is kept close to the spot price by a funding rate paid periodically between longs and shorts rather than by delivery, and because it never expires there is no roll and no natural moment at which a position has to be closed. In crypto markets — where the product was invented — perps are the dominant retail leverage instrument, and it is through their liquidation engines that price falls turn into cascades of forced selling. That is a general description of the product, not a claim about how Kalshi's would be built. The filing lands the same week Nasdaq put $100m into Payward, Kraken's parent, at a $21bn valuation, in a deal under which Kraken will distribute tokenised Nasdaq-listed stocks carrying the same voting rights as the ordinary shares. The New York Stock Exchange is building its own blockchain venue for round-the-clock trading of tokenised stocks and ETFs (Bloomberg). This is where the crypto-and-TradFi beat has been heading: not contagion from coin prices, but crypto market structure — 24/7 trading, tokens, perps — being wired into the core of US equities. For our thesis the relevant point is that single-stock leverage has lived in margin accounts at prime brokers, under Reg T, where it is measured. A perp on a prediction-market venue is a different home for the same exposure. Leverage caps, clearing arrangements and whether the SEC agrees are all unknown; it is a filing, not a product.

Hidden leverage and shadow banking11 Sepmedium

Aareal follows Deutsche: €2.5bn of property risk, insured away

Each SRT relocates first-loss property risk from a measured balance sheet to an unmeasured one, and the freed capital is being spent on growth.

Aareal Bank is working with Alvarez & Marsal on a significant risk transfer tied to around €2.5bn ($2.9bn) of commercial real estate loans — hotels, offices and industrial property across Europe, in euros, sterling and dollars — according to people familiar cited by Bloomberg. The bank, owned by Centerbridge and Advent, is simultaneously considering a bid for Hamburg Commercial Bank (Bloomberg). The structure: the bank keeps the loans but buys protection on the first slice of losses from investors, which lets it shrink its risk-weighted assets and hold less capital against the portfolio. Bloomberg is explicit about what banks do with the capital freed: acquisitions, 'more profitable new business or returns to shareholders'. Demand from investors is 'robust', drawn by 'double-digit returns'. Aareal's core equity ratio was already 15.6% at the end of June. This is the second European bank in five days to do this — Deutsche's €2bn SRT on Monday included data-centre project loans — and Aareal is the lender that suffered a slump in US property valuations in early 2024. The loans do not go anywhere. What changes is who takes the first hit if European hotels and offices sour: a regulated bank whose exposure is disclosed, or a credit fund whose own funding we cannot see. And the capital released is earmarked to buy another bank. Fragility at the system level does not move on this; the risk is the same size it was on Thursday. What moves is our thesis's tally of where it sits.

Bond market dysfunction11 Sephigh

'Emerging-market-type risks': the Treasury's adviser on the Treasury

The people who advise the Treasury on how to borrow have started describing it in the language reserved for shaky developing countries. Every other price in the system rests on the assumption that lending to the US government is the safest thing you can do, and that assumption is now being questioned out loud.

The interest rate the US government pays to borrow for ten years came within a whisker of 5% in Asian trading overnight before easing (4.97%, then 4.94% in London, per the Financial Times; our own reading this morning is 4.92%). The thirty-year rate has slipped back too (5.32%, from Thursday's close of 5.36%). That makes this the calmest morning in three days, which tells you what the previous three were like. It is also the morning after a member of the Treasury Borrowing Advisory Committee, the panel of dealers and investors that advises the government on how to issue its debt, said this on the record: 'We can't ignore the fact that there are emerging-market-type risks in some of the actions the US has been taking.' Ellen Zentner of Morgan Stanley Wealth Management meant the buyback and the yen intervention, and the fact that both were improvised rather than run through 'a formal, institutionalised process.' Emerging-market risk is the phrase used for countries whose governments might change the rules on their lenders at short notice. People on that committee do not use it about the United States. Why the buyback is part of the problem rather than the fix comes down to scale and signal. The market in US government bonds, the IOUs Washington sells to cover its deficits, is $32tn. The buyback Treasury Secretary Bessent tripled to $6bn, and then bought only $5.19bn of (per Bloomberg), is about 0.02% of that. It cannot move the price. What it can do is tell traders that the Treasury Secretary has a level of interest rates he does not want to see breached, which invites them to find out how much he is willing to spend defending it. George Catrambone of DWS called it 'a squirt gun to a firefight.' The deeper point is in a Stanford paper the Washington Post surfaced. Hanno Lustig finds the premium investors once paid to hold US government bonds rather than other rich countries' debt has almost entirely gone, and that since 2022 they have not even paid extra for them over the debt of the safest companies, once you adjust for the chance those companies do not pay. Stocks and bonds have fallen together since 2022, as they did on Wednesday. A safe asset is one that rises when everything else falls; that is the whole point of owning it. On that definition the market has stopped treating US government bonds as safe, and a bond that falls with everything else is what an emerging-market bond looks like, whatever the name on it. This is ignition rather than fragility. N

What would change our mind

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

The Fed and Bank of Japan decisions next week. A rate rise delivered with the US ten-year rate holding below 5% and the VIX, the market's gauge of expected turbulence, under 18 would lower ignition; a rise that pushes the thirty-year rate through 5.4% alongside another buyback that comes up short would raise it several points.

Would move the number

The extra interest shaky companies pay over the government. A move above 3 percentage points from Thursday's 2.7 would be the first confirmation from lenders that the strain in rates and in the managers' shares is spreading to the loans; another week pinned near 2.7 would argue the share moves are about fees, not defaults.

Would move the number

The gap between the private lending managers and their funds closing in either direction. Fund prices falling 5 to 10% to meet the managers would raise fragility; Blue Owl and Blackstone recovering half their fall while the funds' stated loan values hold would argue the loans are sound.

Would move the number

Any disclosure on the loans behind Ellison's pledged shares, or an Oracle move of more than 10% in either direction, given that the security for the founder's borrowing and the company's debt-funded buildout now rest on the same stock.

Would move the number