US corporate bond investors cautiously navigate trade war uncertainty

Matt Tracy

Thu, Mar 6, 2025, 8:54 AM 2 min read

By Matt Tracy

(Reuters) - Pressure connected firm enslaved spreads, oregon the premium paid by companies implicit risk-free Treasuries, to widen volition apt persist arsenic investors turn cautious of the home economical outlook and await the implications of the planetary commercialized war.

High-yield enslaved spreads deed a highest 299 ground points (bps) connected Tuesday, their widest since October 2024, earlier tightening backmost successful yesterday to 288 bps, according to the ICE BofA High Yield Index. They are presently 31 bps wider since February 18.

Investment-grade spreads likewise widened this week to 89 bps, besides an astir five-month wide, earlier tightening successful to 87 bps connected Wednesday, according to the ICE BofA Corporate Bond Index.

Bond investors pointed to the commercialized warfare launched connected Tuesday by the Trump medication arsenic the biggest crushed for dispersed widening this week.

President Donald Trump imposed 25% tariffs connected Mexican and Canadian imports, levied 10% tariffs connected Canadian vigor imports, and doubled his tariff connected Chinese products to 20%.

"This could enactment unit connected fixed income assets, and we spot much dispersed widening and hazard ahead, thing we positioned our strategies for having de-risked successful caller months," said Anrzej Skiba, caput of BlueBay U.S. fixed income astatine Stamford, CT-based plus manager RBC GAM.

"We favour abbreviated duration assets, and arsenic volatility picks up, we anticipation to reengage with the plus people astatine amended introduction points erstwhile the particulate settles," helium added.

Though a betterment successful U.S. stocks connected Wednesday pushed firm spreads tighter, investors expect spreads could gradually proceed to widen successful the coming months, arsenic the antagonistic economical consequences of an ongoing oregon adjacent intensifying commercialized warfare marque themselves apparent.

"We've seen preloading of (corporate) inventories up of the eventual tariffs, and we've seen user savings rise, which are often a presage to recessions," said Guy LeBas, main fixed income strategist astatine plus manager Janney Capital Management.

"But the system doesn't determination that accelerated - everything we're talking astir is marginal deterioration, and it's hard to gully a enactment done immoderate 1 datapoint," helium added.

Continued economical gloom and widening spreads could enactment a important dent successful caller firm enslaved issuance, peculiarly from lower-rated issuers, arsenic the outgo of superior increases.

“A Baa-rated firm seeking to contented a enslaved present would request to wage a output astir treble the level 4 years ago," said David Hamilton, managing manager and caput of plus absorption probe astatine Moody’s, successful a Tuesday report.