Key facts
- Headline annual PCE inflation in the U.S. has risen above 4% for the first time in three years.
- Consumer Price Index (CPI) also remains above 4%.
- Traders have recently reduced expectations for Federal Reserve rate hikes by year-end.
- Investors sought to withdraw 14.4% of shares from Ares Management's private credit fund in the second quarter.
- Hedge funds hold $4 trillion in U.S. Treasuries, representing 8.5% of the market.
- Repo cash borrowing to finance these Treasury positions amounts to $3 trillion.
Headline annual PCE inflation in the U.S. has officially risen above 4% for the first time in three years, with CPI also remaining above that level and significantly exceeding the Federal Reserve's 2% target. Despite these inflation figures, traders have recently scaled back expectations for Federal Reserve rate hikes by year-end, removing 15 basis points from implied tightening.
In the private debt markets, significant redemption requests continue. Investors in Ares Management's $23 billion flagship private credit fund sought to withdraw 14.4% of shares in the second quarter, an increase from 11.6% in the first quarter, though redemptions were capped at 5%. Earlier, Apollo placed a similar 5% cap on redemptions from its $26 billion private credit fund after investors sought to withdraw 17% of shares.
A new Federal Reserve paper highlighted hedge funds' substantial exposure to U.S. Treasuries, totaling $4 trillion and representing 8.5% of the market. The paper also noted that repo cash borrowing to finance these positions has reached $3 trillion, with bond holdings and repo borrowing doubling between 2023 and 2025.