US corporate bond spreads tighten to 4-week low as trade war calms

U.S. corporate bond spreads tightened to a four-week low late last week as concerns surrounding a near month-long global trade war appeared to calm.

Market risk stemming from President Donald Trump’s trade policies has rocked the U.S. corporate bond market for several weeks following an April 2 announcement of widespread tariffs. But they appear to have calmed in the week following his decision to pause the levies on most countries except China.

High-grade bond spreads tightened two basis points on Friday to 104 bps, and eight bps overall last week. Junk spreads, meanwhile, narrowed six bps to 367 and 49 bps total last week, according to the ICE BofA Index.

AMID RECENT MARKET TURMOIL, WHO OWNS US TREASURIES?

The IG spread narrowing is the most since the week of the presidential election, noted Dan Krieter, chief credit strategist at BMO Capital Markets, on Monday.

Analysts attributed narrowing spreads largely to an apparent calm in global trade tensions last week. They also pointed to data showing a resilient economy and market technicals.

But market participants still expect bond spreads to widen overall in the second quarter and the rest of this year, as Trump’s economic policies and their impacts unfurl further.

“We still think spreads are biased wider, even though they may grind a bit further in the short term,” said Hans Mikkelsen, head credit strategist at TD Ameritrade, in a Monday morning note.

BESSENT WARNS CHINA ON CURRENCY MOVES, SAYS BOND MARKET ‘DELEVERAGING’ ISN’T SYSTEMIC ISSUE

The bond market experienced record volatility this and last month in response to the tariff situation, according to Mikkelsen. He noted that investment-grade bond trading volumes are up almost 14% over the same time last year to a record level, while junk bond trading rose nearly 12% but fell shy of all-time records reached in March 2020.

Analysts expect $30 billion to $35 billion of new high-grade supply this week, and $150 billion to $160 billion in total May IG supply.

Fifteen companies, including Google parent Alphabet Inc., Philip Morris and Procter & Gamble are expected to price new bonds on Monday.