US Corporate Bond Investors Cautiously Navigate Trade War Uncertainty

Economic

Bond

Summary:

Pressure on corporate bond spreads, or the premium paid by companies over risk-free Treasuries, to widen will likely persist as investors grow cautious of the domestic economic outlook and await the implications of the global trade war.

High-yield bond spreads hit a peak 299 basis points (bps) on Tuesday, their widest since October 2024, before tightening back in yesterday to 288 bps, according to the ICE BofA High Yield Index. They are currently 31 bps wider since February 18.

Investment-grade spreads similarly widened this week to 89 bps, also an almost five-month wide, before tightening in to 87 bps on Wednesday, according to the ICE BofA Corporate Bond Index.

Bond investors pointed to the trade war launched on Tuesday by the Trump administration as the biggest reason for spread widening this week.

President Donald Trump imposed 25% tariffs on Mexican and Canadian imports, levied 10% tariffs on Canadian energy imports, and doubled his tariff on Chinese products to 20%.

"This could put pressure on fixed income assets, and we see more spread widening and risk ahead, something we positioned our strategies for having de-risked in recent months," said Anrzej Skiba, head of BlueBay U.S. fixed income at Stamford, CT-based asset manager RBC GAM.

"We favor short duration assets, and as volatility picks up, we hope to reengage with the asset class at better entry points once the dust settles," he added.

Though a recovery in U.S. stocks on Wednesday pushed corporate spreads tighter, investors anticipate spreads could gradually continue to widen in the coming months, as the negative economic consequences of an ongoing or even intensifying trade war make themselves apparent.

"We've seen preloading of (corporate) inventories ahead of the eventual tariffs, and we've seen consumer savings rise, which are often a presage to recessions," said Guy LeBas, chief fixed income strategist at asset manager Janney Capital Management.

"But the economy doesn't move that fast - everything we're talking about is marginal deterioration, and it's hard to draw a line through any one datapoint," he added.

Continued economic gloom and widening spreads could put a significant dent in new corporate bond issuance, particularly from lower-rated issuers, as the cost of capital increases.

“A Baa-rated corporate seeking to issue a bond now would need to pay a yield almost double the level four years ago," said David Hamilton, managing director and head of asset management research at Moody’s, in a Tuesday report.

As of January 2025, the typical yield on Baa corporate bonds is above 6% — compared to just above 3% in 2021, Hamilton wrote.

"It's going to be a bumpy couple of months until you see a conclusion of what’s getting implemented," said Mike Sanders, portfolio manager and head of fixed income at investment manager Madison Investments.

Source: Theedgemarkets

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ING

Economic

Jobs report suggests no pressing need for additional Fed support

In terms of the headlines from the jobs report, US non-farm payrolls rose 151k in February versus the 160k consensus while there were 2k of downward revisions to the past two months. The unemployment rate ticked higher to 4.1% from 4% (consensus 4%) while hours worked remained at a very subdued 34.1 hours. Wages came in-line at 0.3% month-on-month/4% year-on-year. As such this report is modestly softer than expected, but in general the labour market remains in decent shape and suggests no pressing need for further imminent support via Federal Reserve interest rate cuts.

Monthly change in non-farm payrolls (000)

Resilience of US Job Creation Set to be Tested_1

In terms of the details, federal government jobs fell 10k, which is the biggest drop since an 11k decline in June 2022, but there are obviously downside risks for coming months given the Department for Government Efficiency’s (DOGE) efforts to trim spending. Private payrolls rose 140k with trade & transport adding 21k and financial services also adding 21k. Private education and healthcare services continues to be the main engine of job creation, rising 73k, but leisure and hospitality fell for a second consecutive month. This may well be weather related after a cold snap in the early part of the year hit the hospitality industry.

Quality of jobs remains a concern

Our chief concern about the US jobs market is the quality of jobs that are being added. Since January 2023 only 13% of jobs created have been outside of leisure & hospitality, government and private education & healthcare services. These sectors tend to be lower paid, less secure and more part time in nature, a point borne out by the fact that the average working week in America remained at just 34.1 hours, down from 35 hours in 2021. We would feel much happier if it was technology, construction, manufacturing, business services, transport and logistics etc that was leading job creation – sectors that are typically associated with a strong and vibrant economy.

Cumulative jobs creation by industry (000s)

Resilience of US Job Creation Set to be Tested_2

DOGE's influence set to weigh on future job creation

With next week's CPI report expected to post yet another "hot" 0.3% MoM print – we need to average 0.17% MoM over time to deliver 2% YoY inflation – and huge uncertainty over the economic impact of President Trump's policies this will keep the Fed on the sidelines with the March FOMC set to be a non-event. However, as DOGE effects become more apparent we expect to see the number of Federal government jobs being lost mounting. The bigger risk though is that private sector contractors working for the Federal government are trimmed much more. With tariffs also likely to result in some price rises, putting a squeeze on spending power, we continue to look for rate cuts to resume from the third quarter.

Source: ING

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Warren Takunda

Cryptocurrency

Bitcoin rebounded 4% on Mar, 7 as markets shook off disappointment over the US Strategic Bitcoin Reserve. Bitcoin Forgets Strategic Reserve 'Sell the News Event' with 4% Bounce_1

Bitcoin Forgets Strategic Reserve 'Sell the News Event' with 4% Bounce_1

BTC/USD 1-day chart. Source: Cointelegraph/TradingView

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD recovering from local lows of $84,713 on Bitstamp.

These came as US President Donald Trump signed a long-awaited executive order establishing the Reserve, which will ultimately consist of no “new” BTC; only confiscated coins will form the stockpile.

“Premature sales of bitcoin have already cost U.S. taxpayers over $17 billion in lost value. Now the federal government will have a strategy to maximize the value of its holdings,” David Sacks, the White House crypto czar, wrote in part of a post on X.

“The Secretaries of Treasury and Commerce are authorized to develop budget-neutral strategies for acquiring additional bitcoin, provided that those strategies have no incremental costs on American taxpayers.”

Markets initially fell swiftly on the event as bulls’ hopes for additional BTC acquisitions vanished.

“For what it’s worth, this is not the ‘reserve’ that crypto bulls had in mind,” trading resource The Kobeissi Letter explained in part of an X reaction.

“A clear sell the news event with expectations not being met.”

The subsequent Asia trading session nonetheless witnessed renewed strength ahead of the White House Crypto Summit later on the day.

Continuing, longtime industry commentators saw little reason for cold feet given the overall stance of the new US government on crypto.

“I still don’t understand how people fail to distinguish between bullish and non-bullish news,” popular analyst BitQuant argued.

“I can't recall a time when Bitcoin was more bullish, yet they still manage to manipulate you into panicking at the bottom.”

Charles Edwards, founder of quantitative Bitcoin and digital asset fund Capriole Investments, described the market as “excessively short” at the sub-$85,000 lows.

“Bitcoin always overreacts on news, both up and down,” he contended. Bitcoin Forgets Strategic Reserve 'Sell the News Event' with 4% Bounce_2

BTC/USD 1-hour chart. Source: Cointelegraph/TradingView

Jobs, Fed’s Powell to enter crypto volatility mix

The reserve was not the day’s only potential volatility catalyst on traders’ radar.

A raft of US employment data was due on March 7, along with a speech by Jerome Powell, Chair of the Federal Reserve.

A week after the Fed’s “preferred” inflation gauge came in in-line with expectations, markets have been gradually increasing their expectations over the number of interest rate cuts occurring this year.

The latest data from CME Group’s FedWatch Tool shows 11% odds of a cut at the Fed’s March meeting, with these much higher for its May meeting — almost 50%. Bitcoin Forgets Strategic Reserve 'Sell the News Event' with 4% Bounce_3

Bitcoin Forgets Strategic Reserve 'Sell the News Event' with 4% Bounce_3

Fed target rate probability changes. Source: CME Group

Source: Cointelegraph

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Warren Takunda

Economic

The Canadian Dollar recovered on the day U.S. Donald Trump would pare back tariffs on Canada and Mexico.

Trump delayed imposing tariffs on imports covered by the North American trade agreement (USMCA) until April 2. This should exempt about half of the goods affected by the new 25% tariffs.

"The coverage under USMCA trade agreement, which was renegotiated in President Trump’s first term, relates mostly to rules of origin requirements, so the partial exemption could be seen as addressing concerns over re-imports from third countries," explains Peter Sidorov, a strategist at Deutsche Bank.

"They've been working much harder lately, do you notice that? On people coming in and drugs. We've made tremendous progress on both," Trump said when signing an order to roll back the tariffs.

But analysts say the rollback after just two days is more likely a reaction to the significant fall in U.S. stock markets and concerns by members of his Republican party that tariffs were harming the country's economic prospects.

Canada said it would delay its plan for a second phase of retaliatory tariffs on C$125BN worth of U.S. products to April 02.

Canada will maintain the tariffs announced on Tuesday on about C$30BN of goods imported from the U.S., with U.S. President Justine Trudeau saying he wants all U.S. tariffs removed.

Canadian Dollar: Trump's Row-back on Tariffs Offers Little Respite_1

Above: Pound-to-Canadian Dollar at 15-minute intervals.

Mexico's President welcomed "constructive" talks with Trump.

The Canadian Dollar rose when Howard Lutnick, the U.S. Commerce Secretary, telegraphed earlier on Thursday that the exemptions were in the pipeline.

"The news caused the Canadian dollar and Mexican peso to rally sharply," says Fawad Razaqzada, an analyst at City Index.

However, the rally is shallow, and by the time of writing on Friday, about half of CAD's gains against the likes of the Euro and Pound have been pared.

Caution will limit the CAD's recovery, with traders wary of being bitten by Trump again on April 02.

"With this being a delay rather than a lasting exemption and with reciprocal tariffs also expected to be announced after April 2, this leaves plenty of lingering tariff uncertainty," says Sidorov.

The U.S. President warned that relief for automakers would be short-lived, saying he would not sign another extension next month.

"I told them that's it, this is a short-term deal," he president said, adding he told auto executives not to come back and ask for relief again.

While there will be relief, significant uncertainty and disruption remain, meaning the Canadian economy still faces challenges.

"Even if those tariffs are soon rolled back, investment and consumption are likely to be weaker this year than the Bank of Canada anticipated and the economy will require more policy support," says Stephen Brown, Deputy Chief North America Economist at Capital Economics.

He expects another 25 basis point cut from the Bank of Canada next week.

The Bank of Canada was supposed to be nearing the end of its rate cutting cycle, which would have afforded the Canadian Dollar significant support.

But tariffs and an economic slowdown mean the Bank of Canada cannot rest yet.

This implies ongoing struggles for the currency.

Source: Poundsterlinglive

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Warren Takunda

Economic

The German stock market continued to reach a new high on Thursday after the European Union member states unanimously agreed to ease the fiscal rules for defence spending following Germany’s push for a policy reform.

Member states agree to enhance defence spending

The 27 member states agreed on a general statement to bolster the bloc’s defence spending, aligning with the European Commission (EC) President von der Leyen’s proposal to activate a mechanism to mobilise €800 billion in special funds.

The statement noted that it would advance the European Commission’s proposal for additional funding sources for defence and extend €150 billion in special loans. It also called for additional funding sources, which may refer to a commitment to spend 3% or more of the Gross Domestic Product (GDP) on defence, without triggering debt and deficit limits set by the commission.

This clause will particularly back recent Germany's push to relax its fiscal policy, or the “debt brake,” to increase defence spending and investment in the wider economy.

Germany grappled with fiscal constraints over the past decade maintaining strict spending discipline following Europe’s sovereign debt crisis in 2009. Earlier this week, Chancellor-in-waiting Friedrich Merz announced plans to increase defence spending beyond 1% of GDP, arguing that such spending should be exempt from the debt brake. He stated that Germany must do “whatever it takes” to strengthen its national defence. His conservative party (CDU/CSU) and the SPD, currently in coalition talks, have also proposed a €500 billion special fund for infrastructure investment.

Meanwhile, the EU ignored Hungarian Prime Minister Viktor Orbán’s veto on aid to Ukraine, issuing a separate statement that reaffirmed the bloc’s commitment to supporting Ukraine. The statement declared: “The European Union remains committed, in coordination with like-minded partners and allies, to providing enhanced political, financial, economic, humanitarian, military and diplomatic support to Ukraine and its people, and to stepping up pressure on Russia, including through further sanctions and by strengthening the enforcement of existing measures, in order to weaken its ability to continue waging its war of aggression.”

The DAX hits a new high as German borrow costs soar

The DAX rose 1.47% to a new record of 23,419.48 amid optimism about Germany’s economic recovery. The benchmark index rose more than 17% this year, outperforming global peers, as the defence stocks skyrocketed on expectations of growing military spending.

Wednesday’s rally was particularly driven by the industrial and auto sectors as investors anticipated looser fiscal rules. Additionally, US President Donald Trump’s decision to delay auto tariffs on Mexico and Canada provided a boost to German car manufacturers.

The euro steadied against the US dollar at a four-month high of near 1.08 on Thursday, easing a three-day surging streak. The yield on Germany’s 10-year government bond, known as borrowing cost, jumped to 2.88%, the highest since October 2023. The benchmark bond yield surged 30 basis points in the previous trading day, making the biggest daily increase since the fall of the Berlin Wall in 1990.

The sharp rise in Germany’s government bond yields signals that investors demand a risk premium amid the possible historic fiscal reform. Meanwhile, the European Central Bank (ECB) may slow the pace of interest rate cuts, as increased military spending and Trump’s trade policies contribute to heightened inflationary uncertainty.

Source: Euronews

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Warren Takunda

Economic

U.S. jobs data and a speech from Federal Reserve Chair Jerome Powell will likely be markets' focal point on Friday, as investors grapple with the confusion over U.S. President Donald Trump's rapidly evolving trade policy.

Investor sentiment towards the U.S. economy and markets going into the two events on Friday is downbeat, and the longer the gloom persists, the higher the bar is for lifting it.

The nonfarm payrolls report is likely to show the addition of 160,000 jobs in February, following a 143,000 gain in January, while the unemployment rate is set to hold steady at 4.0%, Reuters economist polls showed.

But risk is to the downside, especially given a slew of data in recent times that missed market estimates.

Global growth concern has shot back onto the radar of financial markets - as if it ever went away - with trade tension weighing on consumer confidence and business activity.

As it is, Fed funds futures point to three more policy interest rate cuts by year-end , and a huge miss in either the payrolls or unemployment figures could prompt traders to ratchet up those bets.

Line graph showing various measures of inflation and the Federal Reserve's policy rate of interest.

Given Powell is set to speak just a few hours after the data is released, he could provide real-time reaction on what the figures might mean for the central bank's interest rate outlook.

Fed officials have already sounded the alarm on a weakening U.S. economy, though Governor Christopher Waller said he is strongly against a cut at this month's policy meeting.

Elsewhere in markets, a global bond selloff triggered by Germany's plans for huge spending showed signs of abating as bund futures and French OAT futures jumped. Bond prices move inversely to yields.

European stock futures pointed to a negative open, though Wall Street futures ticked higher, looking set to reverse their decline from Thursday after the Nasdaq confirmed it has been in a correction since December.

Trade jitters drove down U.S. stocks on Thursday, with the Dow dropping one percent, the S&P 500 shedding nearly 1.8% and the Nasdaq spiraling 2.6%, officially closing in correction territory.

Investors are recalibrating how to play Trump's whipsawing policy, weighing that a so-called "Trump put" supporting stock market prices may be fading and that his administration is more keenly focused on the debt markets.

In the latest policy twist, the U.S. President on Thursday suspended tariffs of 25% he had imposed this week on most goods from Canada and Mexico.

Key developments that could influence markets on Friday:

U.S. nonfarm payrolls (February)Several Fed officials, including Chair Powell, speakTrump tariff headlines

Source: Reuters

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Cohen

Economic

The United States is planning to charge fees for docking at US ports on any ship that is part of a fleet that includes Chinese-built or Chinese-flagged vessels and will push allies to act similarly or face retaliation, a draft executive order stated.

The administration of US President Donald Trump is drafting the executive order in a bid to resuscitate domestic shipbuilding and weaken China's grip on the global shipping industry.

Addressing China's growing dominance of the seas and diminishing US naval readiness is a rare point of consensus between US Republican and Democratic lawmakers.

Chinese shipbuilders account for more than 50% of all merchant vessel cargo capacity produced globally each year, up from just 5% in 1999, according to the Center for Strategic and International Studies.

That gain came at the expense of shipbuilders in Japan and South Korea. US shipbuilding peaked in the 1970s and now accounts for a sliver of the industry output.

The draft executive order, dated February 27 and reviewed by Reuters on Thursday, proposes fees should be imposed on any vessel that enters a US port, "regardless of where it was built or flagged, if that vessel is part of a fleet that includes vessels built or flagged in the PRC (People's Republic of China)."

The US administration and Chinese officials could not be immediately reached for comment.

The document draws from a US Trade Representative's office proposal last month to levy fees of up to US$1.5 million on Chinese-built vessels entering US ports after a probe into China's growing domination of global shipbuilding, maritime and logistics sectors.

A key difference is that the draft executive order does not include USTR language stating that port fees on fleets would be imposed when Chinese-built ships account for 25% or more of vessels operating, slated for delivery or on order.

It also did not put a dollar value on those fees or say how they would be calculated.

The plan could inflict significant costs on major container carriers including China's COSCO, Switzerland's MSC, Denmark's Maersk and Taiwan's Evergreen Marine as well as on operators of ships that carry bulk food, fuel and autos.

MSC CEO Soren Toft said earlier this week the world's largest container carrier could visit fewer US ports to limit its exposure to the new fees.

Retaliation threat

The draft executive order also calls on US officials to engage allies and partners to enact similar measures or risk retaliation.

The US would also impose tariffs on Chinese cargo-handling equipment, according to the draft order.

"The national security and economic prosperity of the United States is further endangered by the People's Republic of China's unfair trade practices in the maritime, logistics, and shipbuilding sectors," the draft order said.

Reuters had reported on Wednesday on plans to impose fees on imports arriving on Chinese-made ships from a draft fact sheet of the 18-point executive order.

French carrier CMA CGM said on Thursday it would spend the next four years expanding its US-flagged American President Lines fleet to 30 from 10 currently.

CMA CGM is the world's third-largest container shipping line and is part of a vessel-sharing alliance with companies

including COSCO. It counts global retailer Walmart as a top customer and last week said the proposed US port fees on China-built ships would affect all shipping firms.