Trade Uncertainty Freezes Credit Markets, Driving Volatility Near Record Lows

- Record-low credit market volatility. - U.S. trade policy uncertainty driving investor caution. Credit market volatility has plunged to near-record lows as investors retreat amid ongoing U.S. trade policy uncertainty. Despite weaker U.S. economic data, markets remain stable, and movements of corporate bond spreads and credit-default swaps have also significantly decreased. On June 10, 2025, Bloomberg reported that cautious investor behavior has significantly decreased price swings affecting North American credit-default swaps and European investment-grade companies. This caution is primarily driven by a lack of clarity on U.S. tariff plans; consequently, moves in corporate bond spreads have also significantly diminished. Markets have maintained stability despite reports of weaker U.S. economic data, which includes softer services activity and lower private-sector payroll numbers. However, these figures are raising concerns about companies' future ability to service their debt. Experts offer varied opinions on the market's potential future. According to Jamie Newton of Allspring Global Investments, "spreads will likely remain in a narrow range until the trade policy situation resolves." He further advises investors to focus on returns from holding bonds or the "coupon-plus" strategy. Alexandra Ralph from Nedgroup Investments stated she "does not foresee a major credit sell-off," attributing this to a lack of fundamental triggers but expecting spreads to widen gradually through year-end. Mark Dowding, Chief Investment Officer at RBC BlueBay Asset Management, predicted, "volatility could pick up materially in the coming month." Christian Hantel at Vontobel Asset Management stated, "any major macroeconomic headline impacting both firms and investor appetite could be particularly worrisome." The upcoming G7 summit and a July 9 U.S. tariff deadline are potential future catalysts that may spark increased market volatility. Indeed, some traders are reportedly preparing for larger market swings if trade tensions escalate. Confidence in credit markets generally persists, despite current tight conditions. Although risk premiums surged in April, they later eased after the White House moderated its stance on potential trade barriers. As a result, global corporate bond spreads have now returned to the levels they held before President Trump’s "Liberation Day" announcements in early April.