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Is Bessent holding a winning hand?

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Our take -- Bessent's Bazooka or Paper Tiger?

Some of us remember the Draghi Bazooka. In 2012, with Greece in default and borrowing costs in Spain and Italy spiraling, Mario Draghi promised to do "whatever it takes." The message was simple: don't fight a central bank with an unlimited balance sheet.

Fourteen years later, the bond market may be testing a very different proposition.

U.S. federal debt has crossed $40 trillion, with approximately $10 trillion coming due over the next 12 months. And the long end is pushing back.

This week, with the 30-year Treasury above 5%, Scott Bessent doubled Treasury buybacks of long-dated bonds. Yields initially fell. Within two days, the move had largely disappeared.

There's a reason.

Bessent doesn't have a bazooka. The Fed does.

Treasury can buy long bonds, but it has to finance those purchases somewhere else—effectively swapping long-term debt for shorter-term borrowing. Draghi could credibly threaten unlimited purchases. Bessent can't.

And the fiscal math is getting ugly. Washington is projected to spend $7.4 trillion this year, including more than $1 trillion on interest, against only $1.9 trillion of total discretionary spending.

The risk is a feedback loop:

Higher yields ? higher interest expense ? bigger deficits ? more borrowing ? more supply ? higher yields.

If the bond market decides to test Bessent, Treasury may be a paper tiger. The real question is what happens if the market keeps selling until the Fed is forced to choose between fighting inflation and rescuing the Treasury market.

For decades, Treasuries have defined the risk-free rate.

What happens when the risk-free rate becomes the risk?

Corporate Credit Markets Pushback

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Braskem files for BK

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Trinseo confirmation hearing takes up recharacterization

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Our take:

Excluded lender CastleKnight takes aim at Trinseo’s double-dip intercompany claim, challenging it on disallowance, recharacterization and equitable subordination grounds. Stick the landing on any one of them, and every LME lawyer in America will be drafting around it by Monday.

Walrath drops the mic

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Our take:

Judge Walrath—of WaMu fame—just stepped squarely into the intercompany debate, recharacterizing $37.6 billion of AIG intercompany debt as equity. The implications extend well beyond AIG.

Think Johnson & Johnson and every large corporate structure designed to wall off subsidiary liabilities while funding the subsidiary through parent "loans." Calling an intercompany advance a loan doesn't necessarily make it debt—particularly where the parent controls both sides and the economics don't look arm's-length.

The question is how far this goes. For companies relying on corporate structure to cabin mass-tort and other legacy liabilities, this seems like a pretty loud warning shot. For LMEs? Not so much...

Hit 'Em With The Trustee Card

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Exculpation limited in SDNY

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Our take:

The interesting part isn't that broad exculpation lost—we flagged that when the district court first vacated it two issues ago. It's whether this is another nail in the coffin for SDNY Chapter 11 practice. Judge Swain's willingness to cabin bankruptcy judges' discretion in favor of statutory text is another shot across the bow.

Expect objectors in other courts to quote this opinion chapter and verse. And don't be surprised if parties to already-confirmed plans start quietly asking whether their own exculpation provisions would survive the same test.

The Double-Pledge, Double-Crossed

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Declining First-Lien Recoveries

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Capital as a Moat: Compute

The AI buildout is the largest infrastructure investment cycle of our lifetimes, and it is just getting started. For years the debate centered on talent, data, and compute. A fourth input now belongs on the list: capital. Goldman believes the Digital Infrastructure build-out will be ~$7.5 Trillion through 2031. Public and Private Credit, both Corporate and Asset-Based are central components to the AI build-out. This is one of the great capital formation stories in market history, and credit sits at the center of it.

The strongest builders understand this. An A or AA credit profile with deep operating cash flow can finance capacity before demand is fully proven. Capital is abundant, but it will not be priced equally, and an edge in borrowing cost, structure, and speed compounds into strategic advantage. Financing intelligence and scaled capital is invaluable in executing.

We underwrite these financings every day, and here are a few of the many key questions:

1. Who stands behind the revenue, and are we paid for it? Investment-grade counterparties anchor the tightest structures, while non-IG contracts can offer the best risk-adjusted returns when the spread, collateral, and covenants reflect the credit.

2. Does the debt amortize inside the contract? Loan maturity should never outlive the revenue that services it.

3. What is the collateral worth in year five? NVIDIA stands apart: best-in-class GPU hardware, and in CUDA the ultimate moat, an ecosystem that keeps chips productive for years and underpins meaningful residual value.

4. Is the power secured? Power, land, and interconnection are the scarce assets. GPUs can be bought; megawatts must be won.

5. Are the structural protections real? A perfected interest in the collateral, DSCR covenants, and cure rights separate true asset-based lending from lending on hope.

Hard assets, low obsolescence, contracted cash flow, strategic scarcity. Expect the best-capitalized compute platforms, neoclouds, and AI companies, along with their lending partners, to compound advantages in the years to come.

To follow Bruce's thoughts on the markets, investing and more, follow

@bruce_markets

Make-Whole Claims in Bankruptcy

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