HY Market Weekly Minutes: Respite or Relief Rally?...Tariff "Pause" Triggers Wild Market Swing (April 14, 2025)
A Brief Recap of Last Week's High Yield Market Performance
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The credit market just experienced its most schizophrenic week in years.
After opening in free fall, high yield staged a modest recovery to return “only” -0.70% after Trump’s surprise 90-day tariff pause announcement sparked the largest single-day S&P rally since 2008. But let’s not confuse a technical bounce with fundamental strength—high yield just suffered its third consecutive weekly loss, with MTD returns now a disastrous -2.40%.
Talk about whiplash. The market went from doom to relief seemingly overnight, with the hardest-hit names swinging 5+ points in a single session. By Friday, cash closed with a modest gain as spreads tightened 15bps to 419bps, a welcome reprieve after the bloodbath of recent weeks.
But the damage is still severe. High yield mutual funds and ETFs just experienced a record-shattering -$9.6 billion outflow, the biggest since 2005. For context, even during the pandemic’s darkest days, no single weekly outflow exceeded -$5.2 billion.
The primary market? Still completely frozen. For the first time since the pandemic, not a single high yield deal priced amid the chaos, with the calendar expected to remain barren through the shortened holiday week. The one exception hanging in limbo was Patterson Companies’ $1 billion senior secured notes offering, which launched before the market meltdown and remained in market throughout the turmoil.
What’s most telling isn’t the roller-coaster price action but the unprecedented exodus of retail money. The staggering $9.6 billion outflow represents the largest high yield retreat in history, yet prices stabilized by week’s end. This suggests the initial panic selling may have run its course—especially after a Fed official’s Friday statement that the central bank stands ready to stabilize markets if needed.
Weekly Performance Recap
The numbers capture the conflicted market narrative. Overall HY lost -0.70% for the week, though with significant underlying volatility:
BBs returned -0.91%, pushing MTD losses to -2.08% and cutting YTD gains to just +0.62%
Bs showed some relative resilience at -0.55%, though still down -2.40% MTD and +1.68% YTD
CCCs surprisingly outperformed at -0.32%, though their broader damage remains severe at -3.58% MTD and -4.01% YTD
The technical picture remained challenged despite the late-week relief rally:
Overall index yields edged higher by 27bps to 8.58%, now at 94% of their 52-week range
Spreads actually tightened 8bps to 419bps, though still sitting at 83% of their 52-week range
CCC spreads widened 13bps to 824bps even as other quality segments tightened, highlighting continued stress in the riskiest credits
After the previous week’s historic spread widening, the mixed performance suggests investors are starting to differentiate rather than engage in indiscriminate selling. The BB-BBB basis tightened 13bps to 135bps, bringing it back from extreme stress levels while remaining significantly elevated compared to earlier this year.
Primary Market Activity
The primary market completely shuttered amid the historic volatility. Not a single high yield deal priced last week—the first complete market closure since the pandemic’s darkest days. Even deals that were in the pipeline vanished, with issuers and underwriters wisely choosing to wait out the storm rather than test the waters amid record fund outflows.
The one deal that remained on-the-road was Patterson Companies’ $1 billion senior secured notes offering to fund its LBO by Patient Square, which had launched the prior Wednesday and chose to ride out the storm. Meanwhile, the capital markets freeze extended to leveraged loans as well, which are currently experiencing an unprecedented 11-day stretch without a new deal launch—the longest streak since 2020.
The carnage in secondary has cast a long shadow over primary. Recent new issues are almost universally trading below their issue prices. This underwater performance makes the prospect of launching new deals even more daunting. Year-to-date issuance now stands at $68.3 billion, down ~30% from the same period last year.
Secondary Market Dynamics
The volatility across sectors was extraordinary. Cyclical auto names swung wildly, initially selling off before surging +4-5 points following the tariff pause announcement. Energy names demonstrated similar volatility.
Friday’s session revealed the beginning of a quality divergence. Higher-rated credits finished the day up, while wider names started the session down before rallying back to unchanged. After days of indiscriminate selling, investors appear to be regaining their composure and differentiating between credits based on fundamentals rather than just tariff exposure.
Looking Ahead
The market now faces a true test as the dust begins to settle. A 90-day tariff pause provides breathing room, but its upcoming expiration and continued China tariffs at 125% create an environment of extended uncertainty that will weigh on corporate decision-making:
Retail Sales on Wednesday – Forecast to surge 1.4% as consumers pulled forward purchases ahead of tariff implementation. This artificial boost will likely mask the true impact of tariffs on consumer spending in the short term.
Industrial Production on Wednesday – Expected to decline despite February’s surprisingly strong 0.7% gain. Manufacturing faces multiple headwinds including high capital costs, labor shortages, and persistent trade uncertainty.
Housing Starts on Thursday – Projected to pull back as high costs and economic uncertainty continue to pressure homebuilders despite slightly lower mortgage rates.
March CPI showed a surprising drop of -0.1% month-over-month—the largest decline since May 2020—with core inflation rising just 0.1%, the smallest increase since January 2021. While this would typically be positive for credit, the real question is whether this represents early demand destruction or is simply the calm before the tariff-induced inflationary storm.
The record $9.6 billion of outflows and massive dealer derisking could actually create a bullish technical setup in the near term. With sentiment at extreme bearish levels and dealers holding minimal inventory, any positive catalyst could trigger a sharp, if temporary, relief rally.
First quarter earnings starting this week will provide the first real opportunity to gauge how companies are navigating the challenging environment. Early financial sector reporters have indicated that while 1Q results remain solid, the outlook has become significantly murkier. Expect management teams to be extraordinarily cautious with their forward guidance—and for markets to punish those who aren’t.
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