(March 11): The fear sweeping through stocks and other risk assets is slowly bleeding across corporate credit markets, raising new worries that debt that has rallied for the last two years could be due for a correction.

In the US investment-grade bond market on Monday, about 10 companies postponed bond sales they had planned. Investors looked to hedge against the market getting weaker, driving the cost of protecting credit against default to some of the highest levels in six months.

Spreads on investment-grade dollar bonds in Asia outside Japan widened at least two basis points on Tuesday, with some blowing out as much as six basis points, according to credit traders. They are headed for their steepest two-day increase in more than six months, a Bloomberg index showed. A key credit-default swap index in the region also rose at least two basis points on Tuesday.

Wall Street’s recession anxiety broadly ratcheted higher after US President Donald Trump signalled over the weekend that the economy could suffer before it gets better. That sent the S&P 500 Index to the brink of a correction while rattled investors piled into Treasuries as the chances of an economic slowdown mount.

Investors’ growing worries are a shift from money managers’ that had largely been sanguine about company credit for much of the year. US corporate bonds saw less price movement than Treasuries last month, making the securities in some sense safer than their government counterparts, an unusual turn of events.

“We see the recent moves as a recalibration of expectations and reality,” said Winifred Cisar, the global head of strategy at CreditSights Inc. “With the market worried that both the ‘Trump put’ and ‘Powell put’ are off the table, growth concerns from policy changes and a slowing consumer have started to work through credit markets, pushing spreads wider.”

While corporate debt gained on Monday, Treasuries rallied even more, driving bond spreads to the widest in nearly six months.

The average risk premium on investment-grade bonds in the US has climbed around 0.1 percentage point, or 10 basis points, since late February and now sits at the widest since September.

The cost of hedging against market downturns in credit derivatives markets has also been climbing. The Markit CDX North American Investment Grade Index widened by three basis points to its highest since August — when the meltdown of the yen carry trade lashed markets — signaling a rising cost to protect debt against default.

The high-yield gauge, which falls as credit risk rises, declined to its lowest in six months, also a sign of hedging costing more.

Until recent weeks, risk premiums, or spreads, on both investment-grade and high-yield bonds sat near their lowest levels of the century. Investors were betting on a promising economic backdrop, strong corporate earnings and all-in yields propped up by relatively cheap government debt. Even as the stock market whipsawed on tariff headlines, demand was steady enough in corporate credit that spreads had barely moved on the year and volatility was subdued.

“The market was at expensive valuations across classes,” said John McClain, a portfolio manager at Brandywine Global Investment Management. “Any change to the narrative which we’ve seen over the past month or so is leading to enhanced volatility as market participants were kind of lulled to sleep.”

In leveraged loans, five companies that launched offerings have pulled them from syndication in recent weeks, faced by investors who are pushing back on aggressive pricing and credits with lower ratings. Four of the five have been for repricing, according to Bloomberg-compiled data, with the latest being an US$810 million deal from natural gas producer NorthRiver Midstream Inc.

Nevertheless, corporate credit has still shrugged off much of the volatility seen in the equity markets, said McClain, the Brandywine money manager. US investment-grade spreads were little changed last week, according to Bloomberg index data even as the S&P 500 slid more than 3%.

Market volatility has forced borrowers to stay on their toes even more than usual, says Jonathan Anderson, the head of debt capital markets and debt syndicate at SMBC Nikko Securities America. So far this year, that has meant following along with a market backdrop that has seemed to shift more quickly.

“In previous times, it might take the market a series of days for the tone to meaningfully shift, either positive or negative,” said Anderson. “Whereas in this market, where there does appear to be a greater focus on headlines, that tone can move in a shorter period of time.”

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