(Bloomberg) -- Global corporate bond spreads have widened for eight trading sessions in a row, ending a period of remarkable tranquility, as investors start to turn defensive amid fears about the impact of tariffs.
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Yield premiums on a Bloomberg index of investment grade corporate bonds from developed and emerging markets rose to 90 basis points on Friday, wiping out a move tighter earlier this year. That cemented the index’s longest streak of widening spreads since October 2023, according to data compiled by Bloomberg.
Read: Franklin Templeton to AXA See Dangers in Credit’s Eerie Calm
The widening comes after a relentless rally in corporate bonds that some money managers had started to see as a red flag. Investor nerves are now fraying as worries pile up about US President Donald Trump’s combative approach to trade. US tariffs against Canada and Mexico are due to come into effect Tuesday, while restrictions against goods from China — which has threatened to respond — raise the risks of a tit-for-tat trade conflict.
“I don’t think you’re being compensated for the risks that you’re taking at the moment in corporate credit,” said James McAlevey, a portfolio manager at BNP Paribas Asset Management, during a Bloomberg Television interview Monday. “I’m struggling with how tight spreads are.”
His comments echo concerns from money managers including Franklin Templeton Investment Management and AXA Investment Managers, who have recently been reducing allocation to corporate bonds in favor of government bonds and cash, believing that the meager reward in the asset class isn’t worth the risks.
Worries about trade tensions have been exacerbated in credit markets because valuations are stretched. Spreads have been tightening since the middle of last year as investors have been mostly focused on the attractive coupons, or interest income, that corporate debt can offer. Spreads on the investment-grade index reached about 82 basis points, the tightest since before the global financial crisis, earlier this year.
Still, investors could get a reprieve this week. Chinese policymakers are meeting in Beijing for an all-important political gathering, where they are expected to unveil stimulus that could boost confidence. There is also a chance the White House will push back the tariffs against Canada and Mexico, following an earlier delay.