HY Market Weekly Minutes: The Tariff Bloodbath Arrives...Spreads Experience Largest Blowout Since 2020 (April 7, 2025)
A Brief Recap of Last Week's High Yield Market Performance
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So now they tell us.
All those strategists promising resilient markets? How quickly they’ve changed their tune now that spreads have blown out to 16-month highs.
What happens when you combine 25% tariffs, plunging consumer confidence, and a credit market priced for perfection? A -1.78% weekly meltdown, spreads widening at a pace not seen since COVID, and CCCs returning a catastrophic -3.54%. Welcome to the Liberation Day aftermath.
Index yields surged 59bps to 8.30% while spreads exploded 87bps to 427bps—the largest spread widening since March 2020. Let that sink in. After spending months priced for perfection, credit spreads across BB, B, and CCC segments now sit at 1-year highs. The BB-BBB basis widened dramatically to 168bps from 103bps in just a week.
But what’s truly shocking is how one-sided the primary market became. Only Owens & Minor managed to get a deal done in April, pricing $1 billion secured notes at 10.0%. Chuck E. Cheese’s bond offering? Struggling, even with sweetened terms from JPM.
The severity of the damage in the secondary market varied by sector, but it was brutal almost everywhere. Consumer discretionary led the carnage. Energy didn’t fare much better. The lone bright spot? Mr. Cooper, rescued by a Rocket-fueled acquisition.
With tariffs now fully implemented and payrolls hotter than expected, the Fed faces an impossible dilemma. Cut rates to counter slowing growth and risk further inflation, or hold steady and risk choking off growth entirely.
Meanwhile, credit investors are left wondering whether Wednesday’s “Liberation Day” was just the beginning of a much longer readjustment.
Weekly Performance Recap
The numbers tell the brutal story. Overall HY shed -1.78% for the week, with every quality segment bleeding:
BBs returned -1.18%, cutting YTD gains to just +0.29%
Bs collapsed -1.97%, with YTD negative at -1.14%
CCCs were devastated at -3.54%, pushing MTD/YTD performance to -3.28% and -3.70%
The technical picture is unrecognizable from a month ago:
Overall index yields exploded 59bps to 8.30%, hitting 100% of their 52-week range
Spreads gapped 87bps wider to 427bps, marking the most significant spread widening since the March 2020 pandemic shock
CCC yields soared 128bps to 12.09%, with spreads widening 155bps to a staggering 811bps
Most alarming is the speed of the breakdown. In just one week, BB yields eclipsed their entire 52-week range, jumping 40bps to 6.83% while spreads widened 65bps to 281bps. The market has returned to a sharp quality bias, with BBs outperforming Bs by 79bps and CCCs by 236bps—precisely what you’d expect when recession fears take hold.
Primary Market Activity
The primary market effectively shut down amid the turmoil, with only 1 deal totaling $1 billion managing to price in April:
Owens & Minor brought $1 billion of secured notes at 10.0% at par, before trading down to 97.5 (10.3% YTW) immediately after issuance
More telling than what priced is what didn’t. Chuck E. Cheese’s bond offering stalled despite JPMorgan sweetening the terms to entice skittish investors. Meanwhile, a $900 million leveraged loan backing the purchase of TI Fluid Systems by Canadian auto parts maker ABC Technologies is struggling amid concerns about tariff impacts on automotive supply chains.
The screeching halt in primary activity highlights how quickly market conditions have deteriorated. With spreads at 16-month highs, issuers able to wait will likely remain on the sidelines until volatility subsides. Even companies with near-term maturities may choose to tap bank facilities rather than face the current punishing new issue concessions.
Secondary Market Dynamics
The sector dispersion was extreme, with consumer-facing businesses hit hardest due to concerns about how tariff-driven inflation would impact household spending. Auto suppliers remained under intense pressure following the implementation of 25% tariffs on light vehicles and parts.
Meanwhile, Mr. Cooper’s bonds were the lone standout, soaring on the acquisition news that provided an unexpected exit strategy for bondholders in an otherwise bleak market.
Looking Ahead
This week is loaded with market-moving catalysts that could either stop the bleeding or turn it into a hemorrhage:
NFIB on Tuesday – Small business uncertainty already hit near-record levels in February with firms frantically raising prices. March data will show whether tariff anxiety has reached panic levels.
CPI on Thursday – Consensus expects headline at 0.1% MoM/2.6% YoY, but core inflation remains sticky at 0.3% MoM/3.0% YoY. Any upside surprise would be devastating for markets already reeling from tariff shocks.
Consumer Sentiment on Friday – March sentiment already hit post-pandemic lows at 57.0, with inflation expectations surging to 5.0%. The April survey captured the full tariff announcement window so expect something worse.
If you thought last week was bad, brace yourself for today’s open. Dow futures are down 800 points as I write this, with S&P and Nasdaq futures plunging 2.1% and 2.3% respectively after China’s retaliatory 34% tariff strike on all US imports. Treasury yields are falling—2-years already down 8bps—as credit traders scramble for safety.
High yield spreads are poised to gap wider at the open while the administration digs in its heels. When Bessent and Lutnick both confirm tariffs are here to stay “for days and weeks” and the Treasury Secretary admits 50+ countries can’t negotiate their way out “in days or weeks,” the message becomes crystal clear: this economic confrontation has only just begun.
The auto sector sits squarely in that blast zone. Canada’s 25% retaliatory tariffs on non-USMCA-compliant US vehicles shows we’e facing a potential global trade realignment, not a temporary policy adjustment. Supply chains meticulously built over decades now require complete reconfiguration—a process measured in quarters or years, not weeks.
This carnage might tempt contrarians, but remember: timing bottoms during policy-induced crises is virtually impossible. Better to preserve capital and arrive late than to be early and devastated. Though the best opportunities in high yield always emerge from these extreme dislocations, you don’t want to reach for a falling knife until it’s firmly embedded in the floor.
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meant to write back when you wrote about Mercer, I banked that company back in the 2000s when Greenlight was the major investor, will read your note. I am curious about PC secondaries lists being sent around, what are you seeing there and why would any fund be a seller given nature of these trades?