What if the private-equity buyout model breaks under high rates?
If sustained high rates break the LBO model, the transmission is credit-led: HY widens, financials lag and risk-off bleeds into high-beta crypto/equity. Closest rhyme is the 2007-08 LBO-debt logjam (hung bridge loans) more than a vol event. Forward angle: PE's pivot to NAV loans, continuation funds and dividend recaps has pushed leverage into opaquer corners, so the break shows up as frozen exits/DPI drought before it ever prints in liquid spreads, the COVID analogues miss this slow-grind path.
how we built this number — every step
The class rate is measured from our dated, sourced event library (decade-normalized Poisson — the full table is public at base_rates.json). The variant’s share within its class is the analyst’s editorial call, published so you can audit it. A wider range means thinner precedent. Full recipe: methodology · scored at Reality Check.
The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (gold) over time vs the crowd's (Polymarket, blue), from the past toward the 1–3 years horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. The gold path is an illustrative reconstruction anchored to today's estimate — real dated events, not a live re-estimate history.
What it would mean
If this plays out, it is a risk-off shock. The leveraged-buyout / private-equity model breaks under sustained high rates. The trigger decomposes into signed root‑shocks — Credit spreads ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.
If it happens — the markets it would move
Biggest moves first. Projected moves are cascade-model priors; hist A–B% = what comparable past events actually did (measured abnormal returns), and model prior · unmeasured marks markets with no analogue backing yet. Tap any market for its price history.
| Market | Class | Projected move | |
|---|---|---|---|
| 1 | MicroStrategy MSTRon Hyperliquid 📈 chart | Equity | ▼ -0.7% hist -2.62–+0.62% · other way +23.24% (n=12) |
| 2 | Solana SOLon Hyperliquid 📈 chart | Crypto | ▼ -0.6% hist -13.05–+4.3% · other way -3.1% (n=10) |
| 3 | High-yield credit HYG 📈 chart | Rate | ▼ -0.5% hist -0.48–-0.08% · other way -0.23% (n=12) |
| 4 | Volatility (VIX) VIXon Hyperliquid 📈 chart | Vol | ▲ +0.5% hist -1.49–+0.55% · other way -7.07% (n=12) |
| 5 | Hyperliquid (HYPE) HYPEon Hyperliquid | Crypto | ▼ -0.5% model prior · unmeasured |
| 6 | Nasdaq 100 NDXon Hyperliquid 📈 chart | Index | ▼ -0.5% hist -0.42–-0.09% · other way +0.63% (n=12) |
| 7 | Ether ETHon Hyperliquid 📈 chart | Crypto | ▼ -0.4% hist -7.03–+3.62% · other way +2.79% (n=11) |
| 8 | Bitcoin BTCon Hyperliquid 📈 chart | Crypto | ▼ -0.4% hist -0.97–+1.38% · other way +9.75% (n=11) |
| 9 | Financials XLF 📈 chart | Equity | ▼ -0.4% hist -1.16–+0.32% · other way -0.27% (n=12) |
| 10 | S&P 500 SPXon Hyperliquid 📈 chart | Index | ▼ -0.3% hist -0.2–+0.07% · other way +0.24% (n=12) |
| 11 | JPMorgan JPM 📈 chart | Equity | ▼ -0.3% hist -0.51–+0.05% · other way +0.99% (n=12) |
| 12 | Tech sector XLK 📈 chart | Equity | ▼ -0.3% hist -0.35–+0.48% · other way +0.75% (n=12) |
| 13 | Coinbase COINon Hyperliquid 📈 chart | Equity | ▼ -0.3% hist -0.46–+-0.0% · other way +23.11% (n=10) |
| 14 | Semiconductors SMHon Hyperliquid 📈 chart | Equity | ▼ -0.2% hist -0.5–+1.41% · other way +3.44% (n=12) |
Probable recommendation
Why we may diverge from history
Trust the cascade short on SMH/BTC: realized longs are COVID-rebound contamination; an LBO/PE model break under high rates is a prolonged deleveraging, the antithesis of the 2020 liquidity-flush V those windows measure.
Historical precedent — what analogous events actually did
Across 40 analogous events (overlap‑weighted), as abnormal returns — market beta stripped, so it's the event's own effect, not the market backdrop. Shown at 20 days (persistent) and 5 days (immediate); ↺ fades = the two horizons disagree. Confidence = consistency × sample × significance.
| Asset | History says | Abnormal (20d · 5d) | Hit | n | Confidence | vs cascade |
|---|---|---|---|---|---|---|
| SOL SOL | SHORT | -11.8% · 5d -8.3% | 100% | 7 | 0.59 | ✓ matches cascade |
| ETH ETH | SHORT | -6.8% · 5d -5.1% | 71% | 11 | 0.33 | ✓ matches cascade |
| Volatility VIX | SHORT | -1.5% · 5d +1.6% ↺ fades | 65% | 39 | 0.30 | ⚠ differs |
| US dollar DXY | LONG | +0.6% · 5d +0.3% | 64% | 40 | 0.23 | · |
| SMH SMH | LONG | +1.4% · 5d +0.1% | 64% | 39 | 0.22 | ⚠ differs |
| High-yield credit HYG | SHORT | -0.2% · 5d -0.2% | 60% | 39 | 0.17 | ✓ matches cascade |
| SPX SPX | LONG | +0.2% · 5d -0.7% ↺ fades | 58% | 40 | 0.16 | ⚠ differs |
| MSTR MSTR | SHORT | -2.1% · 5d -3.1% | 59% | 39 | 0.13 | ✓ matches cascade |
| XLK XLK | LONG | +0.6% · 5d -0.1% ↺ fades | 58% | 39 | 0.12 | ⚠ differs |
| Gold XAU | LONG | +1.1% · 5d +0.4% | 57% | 39 | 0.12 | · |
| JPM JPM | SHORT | -0.3% · 5d -1.2% | 56% | 40 | 0.11 | ✓ matches cascade |
| Bitcoin BTC | LONG | +1.6% · 5d -1.5% ↺ fades | 53% | 19 | 0.05 | ⚠ differs |
| NDX NDX | SHORT | -0.1% · 5d -1.1% | 52% | 40 | 0.04 | ✓ matches cascade |
| XLF XLF | SHORT | -0.9% · 5d -1.2% | 52% | 39 | 0.03 | ✓ matches cascade |
Why this probability
PE under stress but model bends not breaks; sustained high rates fading mid-2026. A base‑rate‑anchored prior, continuously scored against what actually happens — not a forecast.