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US corporate bonds issued by riskier borrowers are sliding as concerns rise that President Donald Trump’s tariffs will knock the American economy.
The spread — or additional borrowing cost relative to US Treasuries — paid by junk-rated US companies has jumped by 0.56 percentage points since mid-February to a six-month high of 3.22 percentage points, according to closely watched index collated by Intercontinental Exchange.
The rise in junk bond spreads, an important measure of perceived risks across US markets, underscores worries on Wall Street that Trump’s aggressive tariffs on America’s biggest trading partners will cool US growth or even tip the world’s biggest economy into a recession.
“Credit spreads have widened over the past couple of weeks, driven by fears over a US recession and tariff uncertainty,” said Eric Beinstein, head of US credit strategy at JPMorgan.
Beinstein added the recent tumble in “momentum stocks”, companies such as Tesla and Palantir Technologies that had helped power the rally in equities in 2023 and 2024, had “exacerbated” the drop in junk bonds.
US corporate bonds were able to shrug off the volatility affecting the equity market through February, but as stocks’ woes dragged on, the “small cracks” that started to form in March grew in kind, said Neha Khoda, a credit strategist at Bank of America. “It’s payback for the lack of movement in February.”
Analysts at Goldman Sachs earlier this week revised their forecast for junk bond spreads to 4.4 percentage points by the third quarter of 2025, up from 2.95 percentage points previously. The Wall Street bank noted that spreads were still too low despite the recent rise given the risks of a “significant deterioration” in the economic outlook.
High-grade US corporate bonds have also come under selling pressure, with the spread on the Ice index tracking investment-grade debt up 0.13 percentage points over the past month to 0.94 percentage points, the highest level since mid-September.
Despite the recent rises, spreads on both investment-grade and junk bonds remain low by historical standards. But bankers say the recent tumult has prompted investors to be choosier on corporate bond deals.
“Investors are walking away from transactions quicker if they think they’re priced too tight,” said Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo.
A steadier performance in European credit markets this year had also led to some US groups issuing debt in euros rather than dollars, Beinstein said. There has been $37bn in “reverse Yankee” issuance this year, on track for the biggest first quarter for such deals since 2020.
