Tensions piling up

The U.S. will publish today the CPI fo the month of February, a data point that will not include the oil shock due to the Iran conflict. Hormuz is still effectively closed, and Iran has just bombed a Thai ship that ventured to cross it. The U.S. Navy has declined to escort ships through the strait, arguing the 100% probability of a strike. Private credit woes continue, now with major banks marking down the loans in those funds that are used as collateral to juice returns. Private credit funds are being squeezed by outflows and markdowns, while the only thing they can do is to slowdown redemptions through gates to gain time and allow for the market to calm down or for rates to go down, which is not happening soon. The hart below does a great job putting it all together: the top line, is the banks index, which is starting to reflect their exposure to private credit. At the bottom, the 4 biggest General Partners in the space, with their stocks in a drawdown. Volatility in bonds (MOVE) and stocks (VIX) up, and oil price up as well. And in the middle, perhaps waiting for contagion, public credit indices. Big dislocations are brewing in the market. At some point, we might need a “whatever it takes” moment.

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