CREDIT CONCERNS

Banks say their private credit holdings are senior, secured, and diversified, yet they’re making markets in credit default swaps on private-credit vehicles by Blackstone and others. While not a conflict of interest, they’re building infrastructure, making bearish private credit positions more liquid. When a CDS is sold, the bank hedges the risk by shorting the underlying bond or a related credit index. That raises rates amplifying asset class stress. Hmmm.