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There were two weeks left in the Trump administration when the Treasury Department handed down a set of rules governing an obscure corner of the tax code. Overseen by a senior Treasury official whose previous job involved helping the wealthy avoid taxes, the new regulations represented a major victory for private equity firms. They ensured that executives in the $4.5 trillion industry, whose leaders often measure their yearly pay in eight or nine figures, could avoid paying hundreds of millions in taxes, the New York Times reported. The rules were approved on Jan. 5, the day before the riot at the U.S. Capitol. The industry has perfected sleight-of-hand tax-avoidance strategies so aggressive that at least three private equity officials have alerted the Internal Revenue Service to potentially illegal tactics. The previously unreported whistle-blower claims involved tax dodges at dozens of private equity firms. But the I.R.S., its staff hollowed out after years of budget cuts, has thrown up its hands when it comes to policing the politically powerful industry. While intensive examinations of large multinational companies are common, the I.R.S. rarely conducts detailed audits of private equity firms, according to current and former agency officials. Such audits are “almost nonexistent,” said Michael Desmond, who stepped down this year as the I.R.S.’s chief counsel. The agency “just doesn’t have the resources and expertise.” One reason they rarely face audits is that private equity firms have deployed vast webs of partnerships to collect their profits. Partnerships do not owe income taxes. Instead, they pass those obligations on to their partners, who can number in the thousands at a large private equity firm. That makes the structures notoriously complicated for auditors to untangle.

A growing chorus of analysts is warning that high-quality company debt may have nowhere to go but down as investment-grade spreads approach levels last seen in the lead-up to the dot-com bubble, Bloomberg News reported. “The best days are behind” for corporate credit, Morgan Stanley strategists led by Srikanth Sankaran wrote in a May 16 midyear outlook. “The combination of extended valuations, less favorable technicals and a slower pace of balance sheet repair suggests that credit markets have progressed to a mid-cycle environment.” Spreads on BBB rated bonds, which account for more than half of the high-grade universe, narrowed to an average of 106 basis points over Treasuries on Monday, fueled by investor demand for the lowest-rated yet highest-yielding part of the asset class. Should spreads breach 100 basis points, it would be the first time since the dot-com era of the late 1990s. Morgan Stanley is calling for 17 basis points of widening for U.S. investment-grade bonds through the first half of 2022, and downgraded its credit outlook to neutral. Meanwhile, Bank of America Corp. expects another stretch of rising Treasury yields will “lead the market to price in a much faster rate-hiking cycle,” strategists led by Hans Mikkelsen wrote in a note distributed Monday. That will cause spreads to widen in the coming months as investors are pushed to either sell or sit on the sidelines.

Archegos Capital is preparing for insolvency, triggered by banks’ attempts to recoup some of the $10bn they lost on its soured bets in March, the Financial Times reported. The family office run by Bill Hwang has hired restructuring advisers to assess potential legal claims from banks and to plan for a possible winding down of its operations. Six banks that acted as prime brokers to Archegos — Credit Suisse, Nomura, Morgan Stanley, UBS, MUFG and Mizuho — lost more than $10bn when they were forced to liquidate the family office’s positions in US-listed companies such as ViacomCBS after it failed to meet margin calls. A number of them are preparing to issue “letters of demand” to the firm — a request for payment ahead of launching a legal claim. They first want to finish closing out the Archegos positions; last week Credit Suisse said it had sold 97 per cent of the related securities. Lenders are also investigating whether Hwang’s family office withheld or provided incorrect information about the scale of its borrowing from other prime brokers.