March 13, 2025
Worries that President Donald Trump’s tit-for-tat tariffs could end up damaging the U.S. economy have begun spilling over into riskier “junk”-rated corporate bonds.
Stocks have tumbled from recent record highs as the tariff war has intensified, but the selloff in high-yield, or junk, bonds, has been mostly contained to bonds at the greatest risk of a default if the economy sours.
Equities and junk bonds often trade in sympathy, and their divergence could be a reassuring sign that fears of a downturn might be overdone, given that even doomsday credit investors aren’t freaking out yet. Or it could be that another trusted recession signal, like the “Sahm Rule” or the inverted yield curve, may be going haywire.