Global credit markets came under increasing pressure on Monday, reflecting mounting fears of a global recession as the financial fallout from U.S. President Donald Trump’s sweeping tariff announcements continued to ripple across equities, commodities, and currencies.
The cost of insuring corporate and sovereign debt surged, as investors fled riskier assets in response to concerns about a deepening economic slowdown. Trillions of dollars have been erased from global stock markets over the past three trading sessions, driven by uncertainty surrounding the broad and severe tariffs introduced by the Trump administration last week.
Credit markets, often viewed as early indicators of financial stress, are now flashing warning signals. According to S&P Global Market Intelligence, the five-year credit default swap (CDS) spread on the iTraxx Europe Crossover Index — which tracks the risk of default among 75 sub-investment-grade companies — posted its largest one-day increase since the banking crisis of March 2023. The index hit its highest level since November of the same year.
“If we see credit struggling, spreads widening significantly, and safe havens like gold or the yen falling, that’s when the alarm bells really start ringing,” said Michael Brown, senior market strategist at Pepperstone.
In Asia, the Markit iTraxx Asia ex-Japan Index — which includes both corporate and sovereign debt — climbed by 26 basis points, its highest level since August 2024. Sovereign credit spreads in Europe also widened, with Germany’s five-year government bond spreads reaching 15 basis points, the highest since January 2024. France’s spread rose to its highest since 2020.
Emerging markets have not been spared. Sovereign credit spreads for China, Vietnam, Indonesia, Thailand, and Malaysia all expanded, with Indonesia and Thailand reaching levels not seen since 2022.
In an unusual turn, the recent turmoil in credit markets has followed rather than led the sharp global equity selloff. Typically, stress in credit markets precedes equity downturns, but the escalation of tariffs — the steepest on U.S. imports in more than a century — has reversed this trend.
U.S. equity futures dropped nearly 4% during the Asian session, with market carnage spreading from Hong Kong to Sydney. The selloff in credit accompanied a broader investor retreat, as many moved into cash or safer assets.
“We’ve seen credit spreads widen materially and funds redirecting into cash or commodities,” said Simon Ward, head of debt capital markets for Australasia at Mizuho. “The debt market is likely to pause, with new deals on hold as volatility spikes.”
The spread between U.S. Treasuries and U.S. investment-grade corporate bonds, tracked by the ICE BofA Index, has widened by about 20 basis points since the tariff announcement. High-yield corporate debt has seen an even sharper jump, with spreads increasing by 96 basis points.
With financial markets on edge, investors are bracing for further shocks as the global economy navigates uncharted territory under the weight of rising protectionism.
