HY Market Weekly Minutes: The Tariff Reckoning Arrives...High Yield Finally Cracks (March 31, 2025)
A Brief Recap of Last Week's High Yield Market Performance
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So much for the Powell bounce. Just one week after the Fed’s “transitory” talk lifted markets, high yield plunged -0.44% as tariff reality crushed the relief rally. The White House confirmation of 25% tariffs on all cars made outside the U.S. was all it took to remind investors that rhetoric doesn’t change economic fundamentals.
The technical damage was severe. Yields jumped 20bps to 7.72% while spreads blew out 23bps to 340bps—pushing the BB-BBB basis above 100bps for the first time since last August. Lower quality bonds got hammered as the growth outlook deteriorated, yet remarkably the primary market still churned out deals, with a staggering $10 billion across 9 transactions.
But here’s the most telling sign: consumer confidence just hit a four-year low of 92.9, while core PCE inflation accelerated to 0.4% monthly, putting the annual rate at 2.8%. We’re seeing signs of stagflation—exactly the scenario the Fed has been desperately trying to avoid, and precisely the environment where credit spreads typically widen dramatically.
The sector dispersion was equally alarming. Auto bonds cratered on the tariff news, while retail names dropped as personal spending data disappointed. Only the most defensive sectors held in, and even they couldn’t avoid the broader market selloff as Friday saw the S&P 500 tumble 2% in its second-worst session of the year.
We’re officially on recession watch. With “Liberation Day” tariff announcements coming this Wednesday and April payrolls on Friday, this week could determine whether this is just another volatility spike or the beginning of something much more sinister.