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McGeever: The 2007 subprime credit warnings are echoed in the alarms of private lenders.
Each financial market crisis differs, but they all rhyme. Parallels are emerging between the tremors rippling now through private credit, and those that led to the Global Financial Crisis in 2007-09. It's not to say that a replay of the historic crash is imminent. There is a growing danger that the mounting pressure in private credit, which includes?opaque prices, scarce or nonexistent liquid, and high redemptions, could spill over to public markets. BlackRock, a?world-leading?asset management firm with over $14 trillion in assets under management, announced on Friday that it had restricted withdrawals from its flagship debt fund following a spike in redemption requests. Blackstone, an alternative asset manager, had announced a few days before that it raised the redemption limit on its BCRED Private Credit Fund to meet record withdrawals. These alarms are a result of a similar incident at the smaller alternative asset manager Blue Owl, which occurred last month. Also, in late 2018, JPMorgan Chase CEO Jamie Dimon warned: "When you find one cockroach, it's likely there are more." Investors who have a sense for history or were around during the 2000s may find this all a little familiar. BNP Paribas and Bear Stearns blocked withdrawals from U.S. Subprime Funds in 2007 or warned of their problems. A seemingly small risk turned into a global 'financial crisis. The GFC did not fully explode until the U.S. government allowed Lehman Brothers' collapse in September 2008. The crisis was building steadily over the past 18 months. Investors were given early warnings by tremors in subprime funds. It is likely that the reasons for not letting investors withdraw their money are similar to those in 2007. Assets may have fallen in value significantly and would therefore need to be sold with a large loss. The asset manager might be afraid of triggering "a fire sale" in other assets in order to raise the required cash. Or the fund could be struggling to sell illiquid assets. It could be all three. It is difficult to determine the true value of private credit assets because the market has become so opaque and illiquid. Price discovery often evaporates when the market becomes illiquid. A similarity to subprime of 2007 is the belief that private credit, and more generally private markets, do not pose a risk systemic stability. We all know that this was wishful thinking at the time. SUBPRIME RHYME - DO NOT REPEAT This time, is it different? If we look at sheer size, probably. According to Investec, the mortgage-backed securities (MBS) market, which was the cause of the GFC in 2007, it was worth $7.2 trillion, or 5% of all global securities. Private credit is currently worth $2 trillion. This represents less than 1% all global securities. As with subprime lending in 2007, private lenders are not as tightly regulated today, at least compared to the traditional banks, so it is difficult to determine their true impact. Even mom-and-pop investors have become more active. According to Investec, retail investors will hold 16.6% of private credit funds by the end of 2024. This is up from just 5.5% at the beginning of 2020. Fitch Ratings, the credit rating agency, said last week that private credit default rates will reach a new record of 9.2% by 2025. This is up from the previous high of 8.1% set in?2024. These defaults did not include any software companies. Software companies have now become major private lenders. Fears of disruption from artificial intelligence have impacted the software sector this year, causing shares in Blackstone, KKR, and Apollo to drop by up to 45%. Private credit risks are skewed towards the downside. The U.S. is facing a difficult time, with a fragile labor market, the aftermath of the Middle East war, wild volatility on the oil markets, and even the threat of "stagflation." The consensus is that GDP growth and broader asset markets are not threatened by private credit. Barclays strategists note that private credit problems are present, but not so serious as to send the U.S. economy into recession. This is, of course, exactly how subprime mortgages were viewed in 2007. When the liquidity wave 'goes out', you can see who has been swimming naked. Recent events on the private credit markets suggest that more funds will soon be exposed. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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Sources say that Brazil's Petrobras will auction 20 million liters (liters) of diesel amid reports of shortages.
Two sources with knowledge of the matter said that Petrobras, the Brazilian state-run company which owns the oil industry in Brazil, plans to auction 20 million liters of diesel to the state of Rio Grande do Sul to address shortages. They said the auction would take place on Wednesday. The U.S. and Israel attacks on Iran are causing a spike in diesel prices, which is the most immediate and serious threat to Brazil's agricultural sector. Producers harvesting record soybean crops and planting corn cannot afford to delay. The initiative, according to a source who spoke under?conditions of anonymity, is necessary to "try and calm the market nerves." Petrobras refused to release more diesel to distributors after their prices had reached a record-breaking discount in comparison to international benchmarks. Petrobras was afraid of supplying fuel at a low price, only to have distributors store it and then resell it when the government-owned firm raised prices. A public auction would encourage competition and prevent such a situation. The source stated that "the auction is a way to sell products at higher/different price levels." It doesn't affect?all of the volume sold but it partially covers the gap with the international markets. Petrobras didn't immediately respond to a comment request.
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The Revolutionary Guards have elevated Iran's new, silent leader.
Senior Iranian sources claim that Iran's Revolutionary Guards pushed through the selection of Mojtaba Khamenei as its new supreme ruler, seeing him as an improved version of his father, who would support their hardline policies and bludgeoning aside the concerns of pragmatics. Sources said that the Guards, who were already very powerful, have become even more so since the start of the war. They quickly overcame misgivings from senior politicians and clerics whose opposition delayed the announcement by hours. Khamenei had not yet issued a statement on Tuesday night, almost 48 hours after he was selected during a war in which more than 1,000 Iranians were killed. The three sources, including a reformist ex-official and an insider, believe that Khamenei’s appointment, which was engineered by the Guards may lead to a more aggressive foreign policy and harsher internal repression. Two of them expressed concern that the Guards dominance of the system could further transform the Islamic Republic, reducing its support base to a thin veneer and leaving less room for addressing complex threats. NEW LEADER MAY HAVE BEEN WOUNDED IN STRIKE Mojtaba Khmenei, despite being a powerful backroom operator who spent decades running his father's offices, is an unknown figure to many Iranians. He may even have been injured in the U.S. and Israeli strikes that killed his dad. An anchor on state television appeared to confirm the widespread rumours that Khamenei had been injured, describing him a "janbaz", "wounded veterans" of Ramadan War (as Iran refers to?the current war). Has not been able confirm his condition. This, and his fears about security after the assassination of his father on February 28, may explain his silence ever since the Assembly of Experts announced on Sunday night that they had chosen him as the supreme leader of the country. The Guards, and the office of the supreme leader, also known as beyt (the "supreme leader"), are the most visible holders of authority. They operate a parallel influence system across the bureaucracy. There were no doubts about who was in charge on Saturday, when President Masoud Peshkian - part of the triumvirate mandated by the United Nations to govern during the interim between leaders - was forced to apologize to Gulf States for his attacks. Sources said that senior guards were furious with his apology. One of three senior sources who claimed that the Guards now run Iran said, "the late Ayatollah Ali Khamenei was able to reign in "the corps by balancing their views against those of the political and clerical elitists within the system." Source: Even if the new leader is able to lead, the Guards could now have the final word in major decisions going forward. Alex Vatanka, senior fellow at Washington, D.C.'s Middle East Institute, said that Mojtaba is owed his position by the Revolutionary Guards, and therefore he will not be as supremely powerful as his father. BLUNT GUARDS Message TO BACK KHAMENEI It is constitutionally the Assembly of Experts that chooses the leader, but it has been influenced by other power brokers in the two elections of new leaders since the Islamic Revolution of 1978. Ali Akbar Hashemi Rafsanjani was the influential politician who ruled the day after Ayatollah Khomeini's death in 1989. Rafsanjani told the assembly Khomeini had whispered Khamenei to him as he lay dying. All five sources agreed that this time the Guards were the kingmakers and their messages were much more blunt. The Guards argued that the war demanded a quick process, and they chose a candidate who would defy the United States. Ayatollah?Heydari said on state TV that because their hall in Qom, a seminary city, was bombed, they had to meet in an undisclosed place. Some members were not able to attend or be informed of the votes. He said that the body had reached its "quorum" of two thirds without specifying exactly how many people were present. Mojtaba Khmenei was supported by 85-90%. The figures did not show the unanimity that the Guards had hoped for. CONCERNS ABOUT HARDER LINE Two sources said that a group of ayatollahs disliked the apparent succession by hereditary line and were afraid of alienating even supporters of the ruling regime. One source said that behind the scenes, some clerics, and members of the establishment, were pushing for an alternative during numerous discussions in the last week. The reformist former official, however, said that the Guards had allegedly threatened Khamenei critics. Insiders in the Islamic Republic said that the Guards contacted the members of the assembly to raise objections but they ultimately felt compelled by the situation. All five sources confirmed that Khamenei was initially intended to be appointed on Sunday morning but the announcement came later in the evening due to the opposition he faced. One official said that as the head of the beyt under his father for many years, Mojtaba had developed very close relationships with the Guards. This was especially true of the second-tier officers who replaced the top commanders killed in war. The reformist ex-official said that the result will be an international and domestic policy which moves in a more revolutionary direction, with the Guards finally gaining what they have been seeking for years: total control. (Reporting and writing by Parisa hafezi, editing by Cynthia Osterman).
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US stocks fall, oil prices drop as Wall Street weighs contradictory messages about Iran
After a?U.S. Donald Trump said that the Middle?East conflict could "end soon" despite the fact that?the?U.S. Israel and the United States pounded Iran's airspace with heavy strikes. The U.S. stock market lost momentum, losing early gains and sliding into negative territory. The Dow Jones Industrial Average dropped 0.07%. The S&P 500 fell 0.2%. And the Nasdaq composite was little changed. The oil prices have fallen by over 11%. Brent futures LCOc1 dropped $11.16, or 11 %, to settle at $86.70 a barrel. U.S. West Texas Intermediate CLc1 crude oil settled at $83.45 per barrel, down by $11.32 or 11.9%. Both benchmarks suffered their biggest one-day percentage drop since March 2022 after rocketing to four year highs the day before. Trump's comments late on Monday instilled optimism into the?markets but contrasted to events in Iran where hardliners rallied around new Supreme Leader Mojtaba Khmenei, and the Revolutionary Guards announced a blockade against oil exports until U.S. Sameer Samana of the Wells Fargo Investment Institute's Global Equities and Real Assets department wrote in an e-mail that WTI crude prices would ultimately revert between $65 and $75. This revealed a strong economic and corporate earnings backdrop. Samana stated that "we would continue to look past those near-term headlines as we see the conflict lasting weeks/months without changing the future outlook in a meaningful way." A Global Rebound? On Tuesday, a stronger investor sentiment led to a rebound in Europe and Asia. Government bond yields fell and expectations for interest rates shifted. After three consecutive days of declines, the STOXX 600 Index in Europe has recovered some gains. However, it ended up with a gain of 1.65%. MSCI's broadest Asia-Pacific share index outside Japan rose by around 3%. Money markets reduced the likelihood of an?European Central Bank interest rate hike in this year after it was already priced in on Monday. The benchmark German 10-year bonds was also little changed, at 2.86%. Analysts at BlackRock Investment Institute wrote that "market pricing indicates weeks of disruptions and not just days or months." Market pricing indicates that there is a possibility of a stagflationary event, but this is not a certainty. The yield of the 10-year Treasury note in the United States rose by 1.8 basis points, to 4.152%. It had risen earlier in the day. The CME Group's FedWatch tool shows that traders are betting on when the Federal Reserve will cut rates next. According to this tool, the first rate reduction is not expected until July. Analysts at ING said that bond yields are still at worrying levels. Expect nominal yields to drop for a while on a reverse trade. In a note to clients, they warned: "Don't expect bonds to rally dramatically structurally." The U.S. Dollar Index?held modest gains on Tuesday against major currencies as investors' appetites for riskier assets remained low. Bitcoin increased by 1.58%, to $70,094, while gold was up about 1.15%. (Reporting from Lawrence Delevingne, Sophie Kiderlin, and Gregor Stuart Hunter, in Boston; editing by Mark Potter, Tomaszjanowski, Emelia Sithole-Matarise, and Nick Zieminski.
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Iran Conflict clouds Brazil Budget Review
Two sources familiar with the discussion said that Brazil's government is facing an additional challenge when it prepares to update its economic forecasts. Market volatility and uncertainty linked to the conflict in Iran will complicate projections for this year's budget management. Within two weeks, the Finance Ministry is expected to release new forecasts on 2026 GDP growth, inflation and inputs for government's bimonthly revenue and expenditure report. The first report for the year is due on March 24. It will assess revenues and expenditures against the approved budget, and determine if a spending freeze would be necessary to comply with fiscal regulations. The source said that if the war does not end and refineries and production are disrupted, or even halted, it will have a medium-term impact, citing inflation and monetary policies. The budget for this year assumed a GDP growth rate of 2.4% and inflation of 3.6%. Brent crude oil was?averaging around $65 per barrel at the time, with a 5.76 reais-to-dollar exchange rate. Oil prices have been wildly fluctuating since the conflict began less than two weeks ago. They briefly reached $120 per barrel last week, before reversing to $83 on Monday. Brazil's real fell last week, but since then has strengthened. It is currently trading at around $5.14 per dollar. Brazil's Treasury stated last week that oil up to $85 per barrel could have a positive fiscal effect, but warned levels above $100 would start to create real inflationary pressure. Brazil's largest export is oil, and higher prices increase government revenue through royalties and dividends paid by the state-controlled company Petrobras. Concerns about inflation stemming from the conflict have boosted bets on the central bank beginning its long-awaited ease cycle with a 25-basis point cut instead of 50. Brazil's debt burden would increase if interest rates were to rise, since nearly half of its large public debt is tied to the benchmark Selic rate, which has been at 15% for the past two years. Third source from the economic team confirmed that a prolonged conflict could worsen debt dynamics and offset direct revenue gains due to higher oil prices. (Reporting and writing by Bernardo Caram, Marcela Ayres, Alistair Bell).
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Sugar prices drop as Trump predicts a de-escalation of the Iran War
Oil prices dropped sharply on Tuesday after U.S. president Donald Trump predicted that the Iran War could be over soon. Dealers stated that the market was focused on the degree to which high energy costs could reduce sugar production in Brazil, where mills are able to adjust their factories to produce more sugar or ethanol depending on the market price for each. The ICE exchange's raw sugar price?futures settled at 14.38 cents per lb after dropping nearly 3% earlier, while the white sugar futures dropped?0.5%, to $418.40 a metric tonne. Petrobras is Brazil's state controlled oil company. It supplies around 80% the gasoline in Brazil. The prices have not yet been increased, but as long as the war with Iran continues, the more likely it will be. The Brazilian gasoline market has a major impact on the prices of biofuel ethanol. The U.S. Department of Agriculture has said that sugar production in the United States will drop as a result of frosts hitting cane fields. Cocoa futures are rising in other soft commodity markets. Prices should be modestly recovering by the end of 2026 according to a survey. London cocoa increased by?5.1% to?2,479 lbs per ton while New York cocoa grew 4.8% to $3.447 a tonne. The Ivory Coast Coffee and Cocoa Council sold over 400,000 tons worth of cocoa export contracts in just 10 days after exporters resumed purchasing for the mid-crop. Arabica coffee dropped 0.4%, to $2.958 a pound, while robusta lost 2.1%, to $3,692 per ton. (Reporting and editing by May Angel; Nigel Hunt, Marcelo Teixeira)
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Wall Street ignores the intense airstrikes against Iran as it advances stocks and oil prices
Wall Street stocks recovered and oil prices fell sharply after U.S. president Donald Trump said the Middle East conflict could "end soon" even as the U.S., Israel and Iran pounded Iran with what both the Pentagon and Iranians?said were the'most intense airstrikes ever. The Dow Jones Industrial Average rose 0.2%; the S&P 500 was up 0.1%, and the Nasdaq Composite gained 0.25%. The STOXX 600 Index in Europe, which had been declining for three trading days straight, recovered some of its earlier gains and finished the day up 1.65%. MSCI's broadest Asia-Pacific share index outside Japan increased by around 3.4%. The price of oil fell by around 10% on Tuesday, after reaching a three-year high the day before. Brent futures CLc1 last traded at around $90 per barrel while U.S. West Texas Intermediate crude (WTI) CLc1 dropped to $85 per barrel. Trump's Monday remarks injected optimism in the markets, which contrasted to?events? in Iran where hardliners rallied around the new Supreme Leader Mojtaba Khmenei while the Revolutionary Guards announced a blockade on oil exports until U.S. Trump stated that the U.S. will hit Iran harder if they block exports. Trump said on Fox News that he could talk to Iran. U.S. defense secretary Pete Hegseth stated Tuesday would be the biggest day of strikes in the campaign against Iran. Sameer Samana of the Wells Fargo Investment Institute, who is in charge of global equities and real assets, stated that WTI crude oil prices will eventually return to a range between $65-$75 per barrel. This would reflect a strong economic backdrop and corporate earnings. Samana stated that "we would continue to look past those near-term headlines as we view the conflict as lasting for weeks/months without changing the future outlook in a meaningful way." A Global Rebound? Investor sentiment improved on Tuesday and led to a rebound in European and Asian shares, while yields on government bonds fell and expectations for interest rates shifted. European indexes started the day higher, following Asia. However, they retraced some of their gains as the day progressed. Germany's DAX added around 1.8% and France's CAC40 gained 2.4%. Money markets have reduced the likelihood of an ECB rate hike in this year after it was fully priced on Monday. The benchmark German 10-year bonds were little changed, at 2.86 percent. Analysts at BlackRock Investment Institute wrote: "Market pricing indicates weeks of disruptions and not days or even months." Market pricing suggests that there is a possibility of a stagflationary event, but this is not a certainty. The yield of the 10-year Treasury bill in the United States was down by 0.2 basis points to 4.132% at the end of the day, after a sharper easing earlier that day. The CME Group's FedWatch tool shows that traders are betting on when the Federal Reserve will cut interest rates next. According to this tool, the first rate reduction is not expected until July. Analysts at ING said that bond yields are still at disturbing levels. Expect nominal yields to fall a little on a reversal trade. In a client letter, they warned that bonds would not experience a sudden structural rally. The U.S. Dollar Index, which measures the performance of the dollar against a basket six major currencies, fell slightly, continuing Monday's steep fall. Gold rose by around 1.66%, reaching $5,221 per ounce. Bitcoin increased by 2.6%, to $70,00793.
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White House to Americans - Energy prices will rise temporarily due to Iran
Karoline Leavitt, White House Press Secretary, said on Tuesday that the American public would see oil and gas prices fall rapidly once the joint Israeli-U.S. war against Iran is fully accomplished. Leavitt told reporters that the increase in gas and oil prices was temporary and the operation would result in lower prices over the long-term. Prices of oil on Monday soared to $119 per barrel, their highest level?since June 20, 2022. Supply cuts by Saudi Arabia and other producers have stoked concerns about major disruptions in global supply. Leavitt said that Trump's energy team was closely monitoring the markets and speaking with industry leaders. The U.S. military is also preparing additional options to comply with the President's directive that the Strait of Hormuz remain open. The White House is concerned that the rise in oil prices, following the U.S.-Israeli strikes on Iran for more than a week, will harm U.S. consumers and businesses ahead of the November midterm elections when Trump's Republican colleagues hope to retain control of Congress.
Macron will host G7 leaders to discuss Iran crisis and energy prices
The French President's Office announced that Emmanuel Macron will hold a conference call on Wednesday with the leaders of the?Group?of Seven to discuss the Iran crisis and the rising energy prices. The G7 is weighing up how to react to the sharp rise in oil prices caused by the U.S./Israel war on Iran.
The G7 energy ministers did not agree on Tuesday to release strategic oil reserves, but instead asked that the International Energy Agency assess the situation before acting.
Standard oil prices surged to almost four-year heights on Monday, but plummeted by 11% on the following day after U.S. president Donald Trump said the Middle East war could be over soon. U.S. officials 'also weigh steps to keep oil flowing in the Strait of Hormuz. This includes?providing a naval escort for commercial vessels, and backing up?war?risk insurance for tanks, to reassure shippers, and to prevent further disruption to global energy supply.
The G7 is made up of the United States, Canada and Japan.
France is currently the?G7 Chair.
(source: Reuters)