Business

1. Markets catch their breath
2. Fed won’t bail out bonds
3. Ivy league leveraging
4. Zuck on the stand
5. Lighthizer on Japan’s play
6. Basis-trade boogeyman

Welcome back to Semafor Business, and happy tax day for our US readers. (There’s still decent money to be made betting on a congressional tax fight.)

The question with any financial shock isn’t the point of impact. It’s the blast radius. The 2008 crisis began in subprime mortgages, but the wonders of securitization spread it everywhere. The dot-com crash was fairly self-contained. When Thailand unpegged its currency in 1997, we got the Asian financial crisis. When Switzerland did the same in 2015, the drama lasted just a few days.

President Donald Trump’s tariff shock moved from the stock market to the bond market. The question now is whether it stays there.

A chief concern is private credit, the catch-all term for lending that happens at investment firms instead of banks. They hold $1 trillion more in loans than they did in 2016, and lent a lot of that money in the frothy days of 2021 and 2022.

The bear case is obvious but superficial: Private credit is huge, untested, and opaque. Anytime $1 trillion pours into a newfangled idea during Peak Good Times, you can expect some trouble. The push by these investment funds to raise mom-and-pop money in particular bears watching. (See: Barry Sternlicht’s asset-bleeding property trust.)

The arguments against a looming crisis are more convincing to me for now. These funds rely less on borrowed money than banks (leverage hovers around $1 for every $1 in assets, compared to $10 at banks today and $25 or more at banks pre-2008). They lend to companies that should be more resilient to a downturn or tariffs, like software and health care providers.

And unlike at banks, most private credit money is locked up. Many also have long-term bond funding. Compare that to Silicon Valley Bank, which borrowed overnight from its depositors and bought 30-year Treasury bonds. Some private loans might go bad (some have) but those are called credit losses, not financial crises.

Another potential trouble spot is university endowments. We delve into their quandary in today’s newsletter — not their PR nightmare, but their cash crunch.

Markets take a breath, buckle up

CEOs and consumers remain on-edge about the prospect of an all-out trade war between the US and China, even as allies move to strike trade deals. Consumer confidence fell for the third straight month, and the dollar hit its lowest level since 2022.

Mixed messages from the White House aren’t helping. NEC Director Kevin Hassett said he was “100% not” expecting a recession this year, while Commerce Secretary Howard Lutnick said a recession would be “worth it.” Meanwhile, the president has repeatedly warned Americans should expect short-term economic pain. (“HANG TOUGH,” he wrote on social media.)

“The economy, prior to all this, has been quite strong,” Trump’s first-term Commerce Secretary Wilbur Ross said in an interview with Semafor. “Nobody really knows whether what he’s doing will, in fact, cause a recession or not.” (About 60% of CEOs surveyed by Chief Executive believe it will.)

Meanwhile, the business community scarcely knows where to look for the latest news: details have been released on Trump’s Truth Social account, buried in a Customs and Border Protection memorandum, and posted in the dust-dry fine print of a Federal Register.

Counterpoint: Nvidia’s announcement Monday that it will build AI supercomputers in the US signaled that tariff paralysis has its limits.

Fed to bond market: You’re on your own, for now

The Federal Reserve is resisting pressure from the White House and Washington to spur big banks to buy more Treasury bonds, a reluctance that could further shake an unnerved market for US debt.

A bond-market revolt forced Trump to backtrack on his sweeping tariffs, but investors are still spooked. Higher yields on government bonds are a sign of stress and eroding faith in the American government to pay its bills.

Still, the Fed isn’t accelerating regulatory changes that would encourage banks to load up on government debt, people familiar with the matter said, even though Treasury Secretary Scott Bessent and JPMorgan CEO Jamie Dimon both support the idea. Tweaks to rules that currently penalize banks for holding big slugs of Treasury bonds are instead winding their way through a painstaking internal process that could take months, the people said.

The Fed is wary of being seen as panicking — or bailing out the administration, or hedge funds that have been heavy sellers. And there is a queasy circular illogic in the central bank declaring US Treasury bonds a risk-free asset at the exact moment the market has decided they aren’t.

— Liz Hoffman and Gina Chon

University finances under pressure

As the White House pulls billions of dollars in federal funding, elite US universities face a problem of their own making: Their money is tied up in investments they can’t cash out.

The historic mainstays of university endowments were stocks and bonds, with a smattering of riskier bets on real estate and leveraged buyouts. Over the past decade, Harvard, Princeton, and other schools already or likely to be in Trump’s crosshairs barrelled into the latter bucket — investments that produced high paper profits but little cash to fund research, scholarships, and other operating expenses. In 2014, Harvard had almost half of its assets in bonds. In 2024, that number was 5%. Other endowments have also swapped readily saleable investments for private funds that offer higher returns but don’t spit out much cash.

Now, many of those elite institutions are facing the threat of budget shortfalls. The Trump administration is yanking funding, and the prospect of a recession could prompt deep-pocketed donors — many of them Wall Streeters already angered by campus protests and university responses — to pull back. Even the donations they do have come with strings attached: About 56% of Princeton’s endowment and 80% of Harvard’s are earmarked towards specific purposes set out by donors and can’t be easily redirected.

Universities are doing what everyone does when they need cash: They are borrowing. But Harvard’s $750 million bond offering is a fraction of the $2.2 billion in federal funding the White House yanked yesterday in response to the university’s defiance.

— Rohan Goswami and Liz Hoffman

Zuck testifies at Meta antitrust trial

Mark Zuckerberg took the stand Monday at a landmark antitrust trial that will determine whether his company illegally squashed startups to consolidate its power over the social-media industry.

He called internal 2012 emails — when then-Facebook executives discussed buying Instagram but not investing in new features — “relatively early thinking,” and not evidence of the government’s claims that it was a strategy to strangle rival apps in their cribs.

Antitrust tussles are always a fight about timeframes. The government’s cases are backward-looking, relying on data about consolidation and market share to show how behemoths got that way. Companies ground their defenses in the future, pointing to new competition and the need to stay ahead of changing consumer habits.

In Meta’s case, that boogeyman is TikTok. Meta’s lawyer said in court that more than half of the company’s engagements involve video, and when TikTok briefly shut down in January, users flocked to Facebook’s apps.

That argument didn’t work for Google, which failed to convince a federal judge last year that the rise of TikTok and ChatGPT meant the days of people finding answers online by typing into a search bar were over. A judge ruled the company an illegal monopoly instead.

Personal tech support: I took WSJ’s tech columnist Joanna Stern’s advice and replaced my browser Google search bar with ChatGPT and I, too, am never going back. The future is bright, if not entirely reliable.

Up next: Zuck’s testimony today is expected to focus on Facebook’s 2014 purchase of WhatApp, The Verge reports. Meta’s dominance in messaging can fly under the radar among the blue-bubble iMessage crowd, but it is a global force. The government has excluded Apple’s text platform, as well as the fast-growing Discord app, from Meta’s competitor set for purposes of this trial, a decision Meta’s lawyer called “gerrymandered.”

Lighthizer sees US Steel, tariff deals at a crossroads

Trump’s first-term trade czar said on a private call with Wall Street investors Monday that the US should quickly strike a trade deal with Japan, whose officials he expected to explicitly link White House support for the sale of US Steel to any talks, Semafor’s Rohan Goswami scoops. “We should strike a deal” with Japan, a “great” trading partner, Robert Lighthizer told top Citigroup clients.

Lighthizer opposes the sale of US Steel to Tokyo-based Nippon, but told the group he would be “flabbergasted” if Japan didn’t try to make its approval a condition of any trade deal. Lighthizer, who served as US Trade Representative from 2017 to 2021, is a longtime China and trade hawk and a mentor to Trump’s current USTR, Jamieson Greer.

In a statement to Semafor, Lighthizer said: “I am against this deal and do not think it is in our national interest.” Citi declined to comment.

This weekend brought a bleak warning for what might happen if the deal collapses: The British government was forced to step in and nationalize the UK’s last steel plant, which was sold to a Chinese company in 2020 and had been losing the equivalent of $920,000 every day.

Basis for concern?

Bessent and other market watchers blamed at least some of last week’s decline in Treasury bonds on overextended hedge funds furiously selling to cover their bets.

But new data out from the Commodity Futures Trading Commission shows the exact opposite of what you’d expect to see if that were happening. Traditional asset managers increased their holdings of Treasury bonds and hedge funds boosted their short wagers. That suggests that the “basis trade,” as it’s known, isn’t the boogeyman many think, at least not yet.

But it remains a large and murky force — Apollo estimates it at $800 billion across all types of Treasury bonds — and has caused trouble before in periods of market stress.

The other hobgoblin theory right now — that China has been selling its substantial holdings of Treasury bonds as retaliation — is harder to parse. Beijing made veiled threats to dump its US government bonds in 2007, then-Treasury Secretary Hank Paulson wrote in his memoir, and China has responded to Trump’s latest tariffs by ratcheting up pressure.

But Bessent downplayed the idea: “If they’re dumping Treasurys, they have to buy something else,” he told Fox Business’s Maria Bartiromo, whose show has emerged as a CCTV loop between Wall Street and the White House. If Beijing were selling Treasury bonds for dollars, you would expect their currency to strengthen; instead, the tightly controlled yuan is up slightly since Liberation Day.

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➚ BUY: Better. The cash-strapped mortgage startup cut a deal with its biggest lender, SoftBank, swapping $530 million of debt — for which its CEO was personally on the hook — for $155 million in new debt and a one-time payment of $110 million which frees its boss.

➘ SELL: Debtors. More US companies went bankrupt in the first quarter than during any three-month stretch since 2010, according to S&P Global. It’s not just the White House that’s nervously eyeing borrowing costs.

“He’s a very effective manager and strategist in these businesses” of cable, studio production, and streaming, “which, by the way, are terrible businesses.”

— Lloyd Blankfein on David Zaslav, in New York Magazine’s must-read profile of the media maybe-mogul

Companies & Deals

• Ted talk: The streaming giant is hoping to double revenue and hit $9 billion in global ad sales in the next five years in its quest to become a trillion-dollar company, The Wall Street Journal reported Monday. Netflix believes it can withstand a potential recession better than most businesses.
• Stock and trade: KKR struck a $3 billion deal for a trade-processing platform jointly owned by CME and S&P Global. The piping that powers Wall Street has been a lucrative space and is just as valuable in either a bear or a bull market.
• Don’t try this at home: Lowes is paying $1.3 billion for an installation services company, the latest in a spate of home-improvement deals — even as tariffs are expected to drive up the cost of construction and renovations.
• Pas de deux: LVMH’s global reach is now proving to be a pain point. Hermès, a single brand outfit maniacally focused on the high end, is now the most valuable luxury company, after Bernard Arnault’s conglomerate posted underwhelming results that sent shares down as much as 8%.
• Enterprise surprise: Elliott Management has a $1.5 billion stake in Hewlett Packard Enterprise, people familiar with the matter said, confirming a Bloomberg report.

Watchdogs

• Fanning the flames: Ten Democratic senators have asked an independent watchdog to investigate the firing of Freddie Mac and Fannie Mae’s board members, Semafor’s Morgan Chalfant scoops.

Markets

• Volatility plays: The big investment banks pared down but never abandoned their trading desks in the wake of the 2008 crisis, a decision that is now paying off. Trading desks at JPMorgan, Goldman Sachs, and Morgan Stanley made a combined $12 billion in fees this quarter, versus roughly $9 billion a year ago.
• More moms and pops: Blackstone is teaming up with Wellington and Vanguard to offer private-market investments to everyday investors, the latest push by Wall Street’s elite into the brown-shoe market.

The escalating trade war between China and the US could boost some American battery manufacturers, amid what is otherwise a major setback for the US energy transition that will hit power utilities and electric vehicle makers that rely heavily on technology imported from China, Semafor’s Tim McDonnell reports.

Grant Ray, vice president of global market strategy at the battery materials producer Group14, said the company’s silicon-based components are well insulated from rising tariffs on Chinese imports and retaliatory restrictions by China.