The introduction of new tariffs by US President Donald Trump is expected to significantly affect the credit markets. Strategists at UBS Group AG predict that this could lead to an increase in spreads on corporate bonds to levels not seen since the onset of the COVID-19 pandemic. This raises important questions regarding how such economic measures impact the financial market and what may happen moving forward.

Tariffs and Their Economic Impact

The implementation of new tariffs raises concerns that it could slow down the global economy. In recent weeks, these uncertainties have caused notable volatility in credit markets, resulting in increased spreads on corporate bonds.

Consequences of Increased Tariffs

The new tariffs could have several implications:

1. Economic Slowdown. Increased tariffs may deter corporate investment, negatively affecting economic growth rates.

2. Heightened Credit Risks. As spreads on corporate bonds widen, the risk of default rises, causing concern among investors.

3. Support for High-Yield Bonds. Amid rising risks, some investors may shift their focus to high-yield bonds, which will, in turn, affect the demand for other financial instruments.

Credit Default Swap Market

Against the backdrop of new tariffs, indicators tracking credit default swaps have shown significant growth. This reflects how investors are starting to price in higher risks with the changing economic landscape.

• Average quality spreads reached 1.09 percentage points (or 109 basis points), the highest level since August 2024;

• Distressed spreads totaled 427 basis points, marking a peak since November 2023.

These figures underline not only the current market situation but also the potential long-term changes that could occur in an unstable environment.

Inflation and Pressure on Credit Markets

It is anticipated that the introduction of tariffs may also lead to increased inflation, affecting purchasing power and subsequently impacting credit markets. Rising costs associated with new tariffs could compel companies to reassess their financial strategies, thereby creating additional pressure on the bond market.

Corporate Adaptation Strategies

Companies may take a variety of steps to adapt to this new financial landscape:

• Reevaluating investment strategies;

• Optimizing expenses;

• Increasing cash reserves.

Such measures can help companies navigate the potential ramifications of the new economic conditions and mitigate risks.

Conclusion

The introduction of tariffs by the US President represents a critical factor that could influence the corporate bond market. The widening of spreads and the rising risk of defaults indicate possible long-term changes in credit markets, necessitating close analysis by market participants. The situation remains dynamic, and future actions from both the government and corporations will be pivotal to the economic outlook.