Uncertainty about President Donald Trump’s tariffs has started to stir credit markets as investors are no longer waiting-and-seeing the changing policy terrain from the White House.
Selling pressure in the last full week of March has targeted auto bonds issued by big American manufacturers, raising following Trump’s announcement of intentions to slap 25% tariffs shortly on vehicles not produced in the United States.
The chart below indicates the recent increase in spread levels on a few Ford Motor Co. (F), General Motors Co. (GM), and Stellantis (STLA) bonds issued in 2021 following the combination of Fiat-Chrysler and the French manufacturer of Peugeot automobiles.
With roughly $123 billion in assets under control at Conning, Cindy Beaulieu, a portfolio manager, said, “The autos certainly have taken it on the chin.”
Until the “first tariff is stamped” on any car, including if they provoke any trade retaliation, Beaulieu notes that there is still a lot of unknown. While auto bonds have come under pressure, she added, the larger corporate bond market shows “a fair amount of complacency,” where spreads stayed rather steady.
Spreads are the additional pay-off investors get above risk-free rates to offset default risks and market volatility. Rising spreads also indicate to higher borrowing expenses for American businesses, which can eat into profitability.
With April 2 set by the White House as a deadline for “reciprocal tariffs,” the selloff in auto bonds raises questions about how big businesses and households will handle the expenses of Trump’s intended levies.
Under Trump’s second term, policy uncertainty has been rather high and might have severe effects on an already weakening U.S. economy. Earlier this month, the concerns caused a stock market fall marked as at least 10% from a previous peak.
While the Nasdaq Composite Index COMP dropped 7.4% on the month through Friday, FactSet reports the S&P 500 index SPX was on pace for a 5.8% decrease in March alone.
Another BondCliQ chart illustrating the increase in selling under the same auto names since the tariffs were revealed this week is here.
Beyond cars, the larger investment-grade U.S. corporate bond market seems to be somewhat consistent; spreads still near historical lows at roughly 91 basis points over Treasurys.
FactSet notes that Ford’s shares dropped by 3% on Friday, while GM’s dropped 7.2% and Stellantis dropped by 4.2%. Not quickly answered were calls requesting comments.
