A series of high-profile fraud cases have recently surfaced, exposing vulnerabilities that accumulated during the prolonged bull market and rapid expansion of private credit. These incidents span multiple sectors and financing structures, with the most severe cases involving private companies that operated with limited oversight.

Tricolor, a subprime auto lender, was the first to collapse in early September 2025. The company allegedly engaged in a double-pledging scheme by using duplicate Vehicle Identification Numbers (VINs) to secure multiple loans against the same auto loan portfolios. This triggered a wave of defaults and a Chapter 7 bankruptcy filing.

Shortly after, First Brands Group, a private auto parts conglomerate with over $10 billion in debt, filed for Chapter 11. Investigations revealed over $2 billion in undisclosed off-balance sheet borrowings and a factoring fraud scheme in which the company sold the same receivables to multiple lenders.

Zions Bancorporation and Western Alliance Bank, two regional US banks, were both exposed to Cantor Group, a real estate investment firm. Both banks allege that Cantor manipulated loan structures, transferred collateral outside of pledged pools, and forged title insurance documents — resulting in significant losses and ongoing litigation.

In the telecom sector, Broadband Telecom and Bridgevoice, two privately held service providers with overlapping ownership, declared bankruptcy in August. Investigations revealed fabricated accounts receivable and forged customer emails, leaving HPS Investment Partners with over $430 million in exposure.

While most of these frauds have occurred in the private markets, the public markets have not been immune. Organon, a high-yield pharmaceutical company, recently disclosed a case of channel stuffing. An internal audit revealed that the CEO had manipulated wholesale sales figures. The board responded by replacing the CEO and initiating a broader review of the company’s sales practices.

These cases underscore the risks that can accumulate in periods of easy credit availability and limited transparency. While public companies are subject to greater scrutiny and governance, the private credit boom has created blind spots that are only now coming to light.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

In a previous Notes prior to the September FOMC meeting, we wrote that the Fed’s balance sheet runoff and increased Treasury bill issuance will continue to expose potential funding stress, especially with the overnight reverse repo facility (RRP) nearly depleted. Incremental Treasury bill issuance now directly reduces bank reserve balances, draining liquidity from the financial system. This means that the Fed could soon slow or stop shrinking its balance sheet, which would serve as an additional tailwind for lower rates in the months to come.

Money market funds (MMFs) parked their cash at the ON RRP facility after the COVID stimulus, which swelled as interest rates rose in 2022. T-bill issuance during that time resulted in MMFs shifting funds parked at the Fed’s RRP into T-bill issuance. As T-bills have taken up a growing share of total Treasury issuance to fund the sizeable fiscal deficit, the ON RRP facility has been largely depleted. Each new round of T-bill issuance will require fresh capital from the market; otherwise, it will begin to pull liquidity directly from the broader financial system, namely bank reserves. T-bill issuance to total US Treasury debt has increased to 22% from as low as 10% in 2015.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, US Treasury

Additionally, the Fed currently allows up to $25 billion in Treasuries and $35 billion in mortgage-backed securities to mature each month without reinvesting the proceeds. By reducing its balance sheet through quantitative tightening (QT), the Fed removes reserves from the financial system as these Treasuries and MBS mature and are not replaced.

As a result, bank reserves have now fallen below $3 trillion, which is under the “ample” level indicated by Fed Chair Jerome Powell in his October 2025 speech.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Federal Reserve

This reduction in reserves tightens financial conditions by increasing competition for liquidity among banks, raising short-term funding costs. The chart below shows the difference between the secured overnight financing rate (SOFR) and the Fed’s RRP rate. The higher the spread indicates higher competition for liquidity among banks, and a sustained rise in this relationship could indicate financial strain.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg, Federal Reserve.

With bank reserves now below the Fed’s “ample” threshold, the central bank may soon be compelled to slow or halt quantitative tightening. This shift would help to stabilize reserve levels and also act as a tailwind for lower interest rates. The risk-reward is increasingly skewed toward an easier Fed.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

US banks delivered robust earnings this quarter, driven by continued expansion in net interest income and strong fee revenues. Although isolated events — such as fraud cases and the First Brands bankruptcy — introduced some market volatility, their impact was limited. Overall, consumer resilience and the soundness of the banking sector remained intact.

The largest banks — “the Big 6” — posted standout results in capital markets and investment banking, fueled by a surge in corporate activity. Credit trends remain broadly healthy, with net charge-offs, nonperforming assets, and reserves holding steady.

Many institutions, including Fifth Third, Truist, U.S. Bank, PNC, First Horizon, and Synchrony, noted lighter provisions for credit losses, reflecting stronger-than-expected credit performance. Ally Financial highlighted a significant year-over-year decline in auto net charge-offs and delinquencies and now expects results at or below prior guidance. Huntington and KeyCorp reported stable-to-improving asset quality, with modest increases in net charge-offs remaining within forecasted ranges. Wells Fargo, Morgan Stanley, and Goldman Sachs posted notably low or even zero provisions, underscoring confidence in their credit books. Concerns arose as Zions disclosed a $50 million write-off due to borrower irregularities, but our assessment is that this is an isolated event rather than a systemic concern. Despite outsized equity volatility in bank stocks, banking credits remained remarkably stable. Overall, the sector is benefiting from resilient consumer and commercial credit trends. Profitability is further supported by reserve releases and a decline in criticized loans.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg 

This quarter’s bank earnings provided a clear view into the resilience of the real economy. Household and private sector consumption remained strong, even amid ongoing policy and macroeconomic uncertainty. The data reinforced the strength of consumer credit, with most prime and near-prime borrowers maintaining financial stability — supported by low unemployment and the wealth effect from buoyant financial markets.

Looking at the broader picture, households have been in a long-term deleveraging trend since the Global Financial Crisis. According to the Federal Reserve’s flow of funds data, household liabilities relative to assets are now at their lowest level in over 50 years, making consumers less vulnerable to economic shocks.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Federal Reserve, Sage 

With another strong earnings season behind them, banks are in a much stronger position than they were entering the regional banking crisis of 2023. They have built excess loan loss reserves and capital, enhancing their ability to weather unexpected economic shifts. Corporate bond investors have expressed increased confidence in the health and transparency of bank loan portfolios, as reflected in the limited sell-off in bank bond spreads. Much of the risk associated with overleveraged borrowers has shifted to private markets, which should help mitigate potential damage in a future credit cycle. Banks are also benefiting from a more measured regulatory environment under the Trump presidency, which is expected to support sector growth and spur further bank M&A activity as the need for scale continues to rise.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

In a world that clings to every labor data release for clues about potential shifts in monetary policy, the absence of official data adds a fresh layer of uncertainty for market participants. Since the government shutdown began on October 1st, only a handful of reports from private and non-governmental sources have offered glimpses into labor market conditions — and they continue to point toward a gradual deceleration.

The ADP National Employment Report is a monthly estimate of private-sector payroll employment, based on actual payroll data from millions of workers. Its measure of nonfarm employment change serves as a counterpart to the Bureau of Labor Statistics’ (BLS) nonfarm payroll figures. For September, ADP reported a decline of 32,000 jobs — one of the weakest readings since the pandemic — signaling a continued slowdown in hiring. The report was released on October 1st, just as the government shutdown began.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, ADP, BLS

In the absence of official data, private sources have become increasingly important for gauging labor market conditions. One such source is Revelio Labs’ Public Labor Statistics (RPLS), a monthly dataset that tracks employment, hiring rates, and job openings using over 100 million public professional profiles. Its September report, released on October 2nd, showed a modest gain of 60,000 nonfarm jobs. Similarly, Indeed’s US job postings, updated on October 8th, continue to show a sharp decline throughout the year. Together, these private indicators reinforce the narrative of a gradually cooling labor market over the past 12 months.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Revelio, Indeed, Sage

Complementing these private employment indicators is the Challenger Job Cuts Report, which tracks layoffs across both corporate and private sectors using publicly available data, press releases, and company disclosures. The latest report, released on October 2nd, did little to shift the narrative of a stagnant labor market. So far this year, 948,000 job cuts have been announced — the highest year-to-date total since 2020 — with 299,000 of those coming from the government sector, largely driven by earlier Department of Governmental Efficiency (DOGE) reductions. Additionally, employers have announced plans to hire just 205,000 workers this year, marking the lowest year-to-date hiring figure since 2009.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Challenger, Sage

Taken together, these non-governmental data sources continue to point to a weakening labor market, with hiring activity at some of the lowest levels seen since 2009. For an FOMC intent on staying “ahead of the curve” in supporting employment, these figures — viewed in isolation — provide continued justification for further rate cuts. However, that stance could shift if inflation unexpectedly accelerates in the near term.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Following the tariff disruptions in April, improving financial conditions have supported asset markets and spurred corporate interest in public debt financing. Investment grade corporate bond issuance reached $1.27 trillion through September — marking the highest volume since the post-pandemic surge in 2020.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Citi, Sage 

An increase in bond supply would typically pressure corporate bond markets, as investors demand higher spreads and lower prices to absorb the new debt. Yet, since April, corporate spreads have tightened to levels not seen since the mid-1990s.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg 

There’s a key nuance to the rise in bond supply: corporations are favoring shorter-maturity debt to benefit from lower interest rates at the front end of the yield curve and preserve flexibility to refinance if long-term rates decline. As a result, most investment grade issuance has maturities of 10 years or less, leading to a scarcity of longer-dated bonds. This trend is reflected in the spread curve, which has flattened significantly — even as the yield curve has steepened — reaching its lowest point of the year outside of the Liberation Day shock.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg 

Although this year’s corporate bond issuance is the largest since 2020 in dollar terms, the overall spread duration is lower due to the shorter maturities of the new debt. This has created a mixed impact on the corporate bond market, with effects varying by maturity segment. As long as issuance remains concentrated in short and intermediate maturities, investors may continue to overlook elevated supply, focusing instead on supportive monetary policy and a resilient economy as the key drivers of spread performance.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy, or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis, and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.