As global markets grow increasingly concerned that President Donald Trump’s escalating trade war could trigger a global economic recession, corporate bond sales in the United States have ground to a halt.
According to informed sources, a $1.1 billion leveraged loan sale, originally intended to finance HIG Capital LLC’s acquisition of Canadian company Converge Technology Solutions Corp., has been put on hold. In the commercial mortgage-backed securities market, Brookfield has postponed a $2.4 billion refinancing plan for a shopping center and office building in Hawaii, citing increased market volatility. Last Friday, market prices recorded the biggest two-day drop since March 2020.
Since Trump announced a full-scale tariff increase on Wednesday morning, no new investment-grade bonds have been issued in the United States. Currently, eight issuers have held investor conference calls, but still failed to successfully issue bonds. High-risk bond transactions are being cancelled or postponed, and risk perception indicators for high-grade and high-yield US corporate bonds have also sent warning signals. Across Europe, investors are selling off risky assets, especially those related to the automotive industry.
“Credit volatility is back,” wrote Deutsche Bank strategists led by Steve Caprio in a report on Monday. “Severe policy uncertainty, arbitrary tariff rate calculations, partial loss of confidence in US institutions and norms, and rising inflation are all significantly increasing risks in the US.”
If the market slump spreads and the widespread freeze on corporate lending persists, economic growth could slow further, exacerbating the economic contraction. Boaz Weinstein, founder of Saba Capital Management, warns that the sell-off in corporate bonds will only intensify and could accelerate bankruptcies.
The trade war has pushed the US stock market rapidly towards its first bear market since the outbreak of the COVID-19 pandemic. Traders’ expectations of the Federal Reserve cutting interest rates this year are heating up, with some even suggesting the possibility of an emergency rate cut before the Fed’s next meeting.
The credit market, which had not been affected by the epidemic before, has experienced some of the biggest fluctuations since the early days of the pandemic in the past few days. Investors are digesting the growing possibility of an economic recession. The risk premium of high-yield bonds has soared to the highest level since November 2023, while the spread of investment-grade bonds has reached the highest level since August.
Matt Brill, head of North American investment-grade credit at Invesco Ltd., said: “Credit spreads are unlikely to return to previous levels. It’s almost impossible because there is too much uncertainty.”
UBS strategists expect Trump’s tariff measures to push corporate bond spreads to levels seen at the start of the pandemic. Bank of America raised its forecast for investment-grade bond spreads this year on Friday, but does not expect them to deteriorate to the levels seen during the 2022 rate shock or the regional banking crisis a year later.
“All this uncertainty in itself creates negative momentum,” said Christian Hoffmann, head of fixed income at Thornburg Investment Management. “If you’re unsure about the policy direction, you become more cautious and conservative, and this caution and conservatism will trigger more pullbacks over time.”
The European credit market also reacted on Monday, especially the junk bond market, as investors rushed to sell risky assets.
According to Bloomberg pricing data, the indicator measuring European credit risk once jumped by 47 basis points and has now reached its highest level since November 2023. Bond prices of several companies in the index have plummeted, especially in the chemical, automotive and real estate sectors, while flooring company Tarkett has cancelled an agreement to modify and extend its term loan.
Chris Ellis, a high-yield portfolio manager at AXA Investment Managers, said: “We first look at how companies will deal with tariffs, but now we are also starting to consider how to guard against a recession.”
He said, “For investors, a sensible strategy might be to hold their ground, review the credit in their portfolios and, of course, keep an eye on what they want to buy when conditions improve.”
