Blain’s Morning Porridge Feb 23rd, 2026 – Private Credit and Treasury Wobbles… Relax….
“Apart from that Mrs Lincoln, did you enjoy the show?”
Sometimes you just have to laugh. The Tariff Judgement against Trump raises elevated Chaotic Tantrum risks in Treasuries, while markets fear what wobbles in private credit might conceal. Everything in markets are connected – when something cracks in credit, someone somewhere else will start screaming!
An interesting week’s play in prospect for global markets this Monday morning. There was a distinct judder moment on Friday after the US Supreme Court declared Trump’s emergency tariffs were unconstitutional. He didn’t react well. The markets shrugged and wondered… Where do we go from here?
I suspect the driving theme for the week with be elevated fears on bonds and credit markets, and how swiftly risks and concerns are jumping the gap to cross-contaminate between bond and equity markets.
- How will markets react to Trump’s tariff SNAFU? Weren’t tariffs going to pay off the USA’s $38 trillion debt? (No – they were not!)
- How will markets react to the wobble-signs from the private credit markets as Blue Owl acts to control retail redemptions on certain funds – while sharks, in the guise of SABA (Boas Weinstein) get ready to pounce with a 35% discount offer to NAV. Could private credit trigger a credit/liquidity crunch?
- The fact lending to software companies (hammered by AI threats) is at the core of the Blue Owl lending concerns highlights the circularity of markets and that credit lending is as much about risk as equities!
- How will these forces inter-relate with all market noise around geopolitics, AI, liquidity, politics, Iran and the growing sense of instability that seems to pervade everything? Cheer up – as I’ll scribble at the end of this Porridge, Life is Still Good.
The first part of the problem are the potential effects of the tariff ruling on the Trump administration’s credibility at a time when concerns about the US debt quantum, its sustainability, and the potential consequences of how the USA repays its debt on global investment flows. The market has so far been watching the Trump, Bessent, Hasset, and Lutnick show with polite concern – assuming these guys have a plan, but now thinking … what happens if they prove to be clueless even as Trump crosses the line from “creative disruption” to “chaotic fury”?
Credibility is critical in times of market tension to stem steaming pots from boiling over. If there is a financial crisis in the offing – perhaps from unknown, hidden valuation issues in private credit markets – is there confidence they can be stemmed and resolved? I have my doubts about how the global markets would react to crisis today compared to the alignment between international central banks and treasuries we saw during the 2008 Global Financial Crisis.
I don’t think anyone in the serious bond market really believed Trump’s political posturing that tariffs were going to replace domestic taxation as a source of US funding – it was well understood they were effectively a consumption tax on US producers and consumers, which would balance the tax bribes given away in the Big Beautiful Bill. No one took Trump’s throwaway lines about increasing US defence spending to $1.5 trillion particularly seriously… but… concerns this morning are all about how to stem US spending during the current hegemonic struggle with China.
Going broke just before the potential outbreak of World War Three is not a good plan. Just go check out: https://www.usdebtclock.org – it’s getting close to $39 trillion…
The tariff noise puts the scale of US spending into perspective – and is likely to elevate concerns on the massive scale of the debt problem and how sustainable are the plans to keep rolling it over.
Lest we forget:
This year the USA has around $8-9 trillion of federal debt to refinance this year. That’s about 30% of its outstanding debt, the consequence of rolling over maturing shorter-dated debt to finance long-term government obligations issued when interest rates started to rise. The US government is facing a budget deficit of around $1.9 trillion in 2026, making the total to be funded around $10-11 trillion. That’s happening at a time when overseas buyers of US debt are increasingly re-calibrating their enthusiasm for Treasuries and the dollar’s exorbitant privilege as global trade de-dollarizes.
Which probably means the Fed will need to indulge in some good-old Quantitative Easing (buying US treasuries) to pull down bond yields, thus flooding markets with liquidity (as happened from 2010-2023) pushing up asset values in an already hot inflation-vulnerable economy. Will global markets buy it? In the post 2008 GFC economic crash, inflation was not an issue (balanced by lethargic post crisis economies and China exporting deflation). Today, latent inflation is a very real threat and will further discourage bond buyers – aka vicious negative bond feedback cycle = bear market!
Meanwhile, a full-on credit wobble on the back of rising concerns about private markets is a possibility. Today credit spreads are close to historical tights, despite the numerous warning signals of multiple credit cockroaches hiding in plain sight. The fears around private credit are around its lack of transparency – we simply don’t know what the alternative private credit funds have lent on. (It should never have been a retail product) But we do know how Private Credit Firms do deals, and how they manage them – for the most part aggressively well.
When Blue Owl “gated” their retail funds (let’s just call it that) last week, it sent a similar signal to Bear Stearns gating structured credit funds in 2007 – troubles in the asset quality of the CDO mill. Just as there were multiple housing and business defaults in the 2008 GFC, there will be private credit defaults in the wings, but most deals will weather any crisis – which is why credit trader Boaz Weinstein’s SABA is trying to buy the Blue Owl deals at a discount.
The big issue is what happens when private capital markets investors (including private equity) find they can’t exit, and private credit markets find it difficult to access new liquidity to roll-over existing loans in a slowdown resulting in rising defaults – these things tend to happen in negative feedback loops!
And what would a liquidity hiccup do to all the plans of massive hyperscale data-centre buildouts – OpenAI admitting it is scaling back in just the first. There are choppy waters ahead…
Cheers up. Remember Blain’s Second Market Mantra: Things are Never as Bad as we fear, although they as Seldom as Good as we hope!”
Over the past few weeks’, I’ve felt like I’ve been battering my head against a world of stupidity. Lots of really annoying things that define the modern world:
- Like the potholes that now swallow whole cars on Satchell Lane.
- The Budget Car- Rental Stand at Edinburgh Airport – where you can only pay the deposit on the car with a credit card, not wi-fi contactless payment (Apple Pay). Since I haven’t used a card for years, and couldn’t remember the codes anyway, we were stuck. It would cost Avis/Budget about £20 to upgrade the till, but why pay that just to improve the customer experience? Nor would they accept my wife’s card – had to be mine. Fortunately, another rental firm did take tap to pay.
- We’ve installed solar panels. Months later we are still waiting for Octopus to instal the updated digital box required to reap the benefits.
Calm… Saturday night restored faith in the World.
The future of my home village of Hamble is under threat from vengeful and 100% evil UK homebuilder Persimmon, which is intent on destroying us because we objected to its plans for building yet more executive rabbit hutches, so they’ve licenced their land to CEMEX a Mexican Cement and Waste company to dig a 1.7mm ton quarry in the heart of our community. We’ve tried to fight in the courts and found out how broken Britain’s planning system is. In April I’ll be publishing a new book, The Battle for Hamble, outlining the tale of “Corporate Greed, Bad Planning, Economic Illiteracy and Plucky Hampshire Villagers”. If anyone wants a review copy to give me a pithy quote for the front pages, let me know.
But my faith in my community was restored when pretty much the whole village was in the Yacht Club to hear our very own supergroup on Saturday night – The Blue Water Giants. A great bunch of musical pros from bands like Procul Harum, Status Quo, Tears for Fears and others played the best gig in the history of the world, got us all dancing our fears away and made the world a much, much better place!
That and wins for Ireland and Scotland in the Six Nations? What’s not to like!
Out of time and back to the day job…
Bill Blain
Author of the Morning Porridge
Advisor – Spitfire Strategic Capital
