(March 3): 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.

Yield premiums on a Bloomberg index of investment grade corporate bonds from developed and emerging markets rose to 90 basis points last 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.

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 on 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 on 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.

Risk appetite was bouncing back in Europe on Monday. The Markit iTraxx Europe index, which comprises 125 equally-weighted credit default swaps on investment grade European corporate entities, is quoted at around 53.6 basis points on Monday, about half a point tighter than the settlement level last Friday, according to data compiled by Bloomberg.

“ITraxx is reacting to the expected fiscal expansion in Europe to finance their increasing defense expenditure,” said Jose Mosquera, the chief investment officer of Madrid-based hedge fund Rho Investments Multi-Strategy. European stocks were higher on Monday morning, led by big gains for defence stocks including Rheinmetall AG and BAE Systems plc.

The European primary market remained opened for business on Monday with Bank of America Corp and Royal Bank of Canada taking orders for transactions in euros and pounds respectively, according to people familiar with the matter. QuickTop HoldCo AB, a Nordic technical installation and service group, also hired banks to carry out investor meetings ahead of a potential high yield bond transaction.

March is historically a busy month for issuance in the US high-grade market. Early estimates for supply this month ranged from US$175 billion to US$200 billion, which would dwarf last year’s US$142 billion. At least eight issuers from Asia including Japan’s Sumitomo Mitsui Trust Bank Ltd were marketing or had hired banks for dollar bonds, according to people familiar with the matter.

Uploaded by Siow Chen Ming