Alright, folks, buckle up! The Asian credit market is throwing a full-blown tantrum, and it’s not pretty. We’re seeing the biggest jump in credit default swap (CDS) spreads since the freaking early days of the pandemic. Yeah, you heard that right. Trump’s doubling down on those global tariffs, folks, and other nations are hitting back, and risk assets are getting crushed.
Asian investment-grade debt (excluding Japan, naturally) saw insurance costs surge around 22 basis points on Monday alone. Markit data confirms it – that’s the largest daily jump we’ve witnessed since March 2020. This isn’t happening in a vacuum, either. Asian stock markets are getting absolutely demolished, from Sydney to Tokyo.
And it’s not just Asia! Trump’s tariff rampage sent global junk bond spreads soaring to levels not seen since 2020. Investors are bracing for a potential wave of defaults and, frankly, a global recession. It’s a mess. Plain and simple.
Let’s break down what’s happening here, because some of you might need it spelled out:
Credit Default Swaps (CDS) are essentially insurance policies on bonds. A rising CDS spread indicates increased perceived risk of default. Think of it as the price of anxiety.
Basis points are how we measure changes in interest rates and yields. One basis point equals 0.01% – so 22 basis points is a significant move.
Investment-grade debt represents bonds issued by companies considered financially stable, while junk bonds (high-yield) are riskier, from companies with shakier finances.
Tariffs increase the cost of imported goods, potentially leading to higher prices, reduced trade, and slower economic growth. They are a double-edged sword, and often more damaging than the politician proposing them realize.
Asian high-grade bonds also felt the pain, with spreads widening by at least 10 basis points – the largest increase since September 2022. This is a clear signal that even the ‘safe’ corners of the market are rattled. This is a wake-up call, people – we need to watch this closely because this could get uglier before it gets better.
