Dan Tarullo

"I'm actually somewhat more concerned about the macroeconomic impact of private credit... if the investments into the private credit funds dried up so that they could no longer make the kinds of loans... you're denying credit to creditworthy households and businesses." Private credit has largely replaced traditional bank lending for middle-market businesses and leveraged buyouts. If a retail panic or valuation crisis freezes the private credit market, businesses will lose access to capital. Because banks cannot entirely fill this massive funding hole, this will trigger a macroeconomic credit crunch. In a recessionary environment, the Federal Reserve will cut rates and investors will flee to safe-haven government bonds. LONG. US Treasuries provide a reliable macro hedge against a systemic credit freeze caused by the opacity and leverage in the shadow banking system. Private credit markets stabilize, inflation remains sticky, and the economy avoids a recession, causing long-duration bond yields to rise.