16-04-2025
What the bond market is saying
The bond market — just like the stock market — is sending signs that maybe you can start breathing again. Not breathing normally, perhaps, but still, breathing.
Why it matters: The junk bond market seized up after the "Liberation Day" tariff announcements on April 2, but now it's showing signs of life.
The big picture: The bond market is more important for the economy than the stock market, since it's the main way for real money to find its way into companies and deals. (The stock market, by contrast, is overwhelmingly dominated by investors just selling shares to other investors.)
Where it stands: After April 2, no companies rated below investment grade — high yield, or junk, issuers — were able to issue debt at all, until Tuesday, when a single natural gas company came to market.
A closely watched index of high-yield spreads, from ICE BofA, spiked alarmingly from 3.42 percentage points on April 2, before Trump's reciprocal tariffs were announced, to 4.61 points on April 7.
That is on top of the rise in rates over the same period. The underlying interest rate, plus the spread, is the total yield on the bond.
Since then, spreads have come back in, to about 4.14 points on Tuesday, in a sign that outflows from the market have ceased and opportunistic funds have started buying.
"It's not a disaster for high yield," says Bill Zox, a high-yield bond portfolio manager at Brandywine. "We had a very bad week of outflows. But things do seem to have settled down."
Zoom out: When the market expects a recession, it tends to trade at a spread of about 6 points, Zox says, compared to about 2.5 points when it doesn't. So the pullback in recent days means we've moved from being about halfway to recession levels to being about a third of the way to recession levels.
The other side: Liquidity remains scarce, Zox says, with bid/offer spreads at historically wide levels. That means a lot of investors are happy to wait for attractive opportunities in the future instead of putting money to use today.
