Weekly Market Summary

Extra Credit^*

• While tariff talks continue to hit headlines, investors have been trying to digest how these tariffs might impact equity and fixed-income markets. Regarding the high-yield bond market, investors could expect to see the market react much more negatively than in 2018 (the last time tariffs/trade wars were discussed). While that period was focused on China, the proposed tariffs currently in place and on the table are much larger in size ($1.4 trillion compared with $380 billion in 2018) and scope (Mexico, Canada, in addition to China). Should these tariffs go into effect, the potential impact to spreads in high-yield bonds could likely be larger than what we saw in 2018.
• Technicals in the loan market have held up well to start 2025, with net supply contained, robust CLO primary activity, and steady retail inflows. These dynamics have collectively allowed prices across the bank-loans market to remain firm. With about 60% of the loan market now trading above par (and has remained above that threshold since mid-November), this has caused the supply of loans in the low- to mid-$90s to dwindle.
• Meanwhile, in the high-yield market, discount bonds remain plentiful, with prices of fixed-rate assets having greater exposure to movements in U.S. Treasuries. High-yield bond prices are somewhat higher than they were when U.S. Treasury rates were around these levels in first half of 2024, but the availability of below-par bonds is still much larger compared to the loan market, with over 30% of the high-yield index trading below $95.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the January at 1.50% for high-yield bonds and 0.30% for bank loans, down from 1.52% and 0.36% December. This is also well below the long-term historical default rate of 3% for loans and 3.4% for high yield, and the historical post-GFC default rates of 2.3% and 2.5%, respectively.

Sources: Bloomberg and JP Morgan as of 2/11/25.