HY Market Weekly Minutes: Rate Collapse Meets Tariff Tuesday...HY's Moment of Truth (March 3, 2025)
A Brief Recap of Last Week's High Yield Market Performance
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The great rate collapse is accelerating. Treasury yields plunged last week, with the 2-year breaking below 4% for the first time since October and the 10-year crashing through its 200-day moving average. Suddenly the market’s pricing three rate cuts this year instead of two. That’s quite a shift in sentiment.
High yield’s response? Spreads widened 10bps last week but index yields tightened 8bps. The market’s disconnects are growing more pronounced. While equities struggled with tariff uncertainties and big tech weakness, high yield maintained its composure, boosted by declining base rates.
But here’s where it gets interesting: The divergence between BB and CCC performance last Friday highlighted the growing quality bias in the market. When investors favor higher quality credits ahead of major policy changes, it suggests quiet repositioning rather than outright panic. Tomorrow’s tariffs implementation will show us if that positioning was prescient or premature…