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US corporate bonds issued by risky borrowers are slipping as concerns grow that President Donald Trump’s tariffs will knock the US economy.
Spreads paid by junk-rated US companies, or additional borrowing costs associated with the US Treasury, have increased by 0.56 percentage points since mid-February, to a six-month height of 3.22 percentage points.
The increase in junk bonds highlights that Trump’s aggressive tariffs on America’s biggest trading partners, a key measure of perceived risk across the US market, will cool US growth and drive the world’s biggest economy into a recession.
Eric Beanstein, head of our credit strategy at JPMorgan, said:
Beinstein has added a recent tumble for “Momentum Stocks.” Companies such as Tesla and Palantir Technologies, which promoted equity gatherings in 2023 and 2024, have “imghed” the decline in junk bonds.
US bonds were able to reduce the volatility affecting the stock market until February, but the “small crack” that began to form in March as stocks struggles dragged on, says American credit strategist Nehakoda. “It’s in return for the lack of movement in February.”
Earlier this week, Goldman Sachs analysts spread Junk Bond’s forecast to 4.4 percentage points by the third quarter of 2025, up from the previous 2.95 percentage points. Wall Street Bank noted that despite recent rises, the spread is still too low, given the risk of a “significant deterioration” of the economic outlook.
High-grade US corporate bonds are also under sales pressure, with the ICE index spreading rising 0.13 percentage points in the past month to 0.94 percentage points, the highest since mid-September.
Despite recent rises, spreading to both investment grades and junk bonds remains low by historical standards. However, bankers say the recent uproar has led investors to be chosen in corporate bond trading.
Maureen O’Connor, global head of Wells Fargo’s luxury debt syndicate, said:
A more stable performance in European credit markets this year has resulted in some US groups being issued debts in euros rather than dollars, Beinstein said. This year, the publication of “Reverse Yankee” has $37 billion, and it’s on track for the biggest quarter of such a transaction since 2020.
