Perspectives Financial Markets provides comprehensive coverage of the latest financial market developments, offering in-depth analysis of global trends and market developments.
“Liberation Day” led to a jump in credit spreads
Credit spreads widened after US President Trump’s “Liberation Day” announcement on 2 April, which introduced a package of “reciprocal” tariffs. This led to an increase in US inflation expectations, a downward revision of GDP growth forecasts across many markets and a higher recession probability for the US. As
a result, credit spreads widened at the beginning of April (both in EUR and USD). In terms of percentiles (data back to 31 March 1999), the spread widening has led to a normalisation of US credit spreads both in IG and HY from historically very tight levels of below 5% to around 25%. Although spreads tightened in the
second half of April, we are neutral on spreads in investment grade and high yield credit in EUR and in USD for May. Despite the risk of a US recession in the second half of 2025, the recent increase of spreads already discounts a certain fundamental weakening. Moreover, the market seems to expect only a short and shallow recession, supported by a calming of trade tensions (e.g. due to tariff pauses, more exemptions or trade deals) and rate cuts by the US Fed. Regarding duration, we expect lower yields in the US for 2-year and 10-year sovereign bonds. In the eurozone, we expect lower yields for the 2-year rate horizon but are neutral for the 10-year rate. For Switzerland, we have a neutral view on government bond yields across the curve.
