Photo: Depositphotos
Authors: By Eric Platt and Will Schmitt, New York | Based on material from the Financial Times
Donald Trump’s new trade initiatives have dealt an unexpected blow to the US financial ecosystem. Following the former president’s tariff blitz, which raised significant concerns about a possible recession, the high-yield bond market – a key source of funding for risky companies – has virtually stalled.
Since the beginning of April, when Trump announced a new wave of tariffs, no company with a low credit rating has been able to place debt on the $1.4 trillion US market. This unexpected “pause” has put at risk the mechanisms for acquisitions, restructurings and other financial transactions, especially for private equity funds.
“Everything is on hold,” says Bob Kricheff, head of credit at Shenkman Capital Management, “No one wants to price a deal in such an unstable environment.
The financial system is in a state of freeze
Trump’s aggressive trade rhetoric has significantly reduced investors’ appetite for risk. High-yield bond funds recorded record outflows in the week following the tariff announcement on 2 April. Some of the most notable deals – such as HIG’s acquisition of Converge Technology Solutions or Apollo’s takeover of TI Fluid Systems – were postponed indefinitely.
Banks are forced to react. They are raising interest rates, changing credit terms, or refusing to participate in risky deals altogether. Financial Times sources report that Citigroup, Morgan Stanley and JPMorgan Chase have already cancelled a number of debt financing offers. The reason is investors’ reluctance to invest in an unstable market.
Banks and funds at risk
Large investment banks are at risk of losses: they have short-term loans on their balance sheets, calculated to wait for the market to recover. But if the yields at which the banks lent are below market rates, this could result in billions of dollars in losses.
“Some of the liabilities may remain on the banks’ balance sheets,” warns Jeff Kivitz, chief investment officer at Canyon Partners, “and we’re already seeing banks becoming increasingly reluctant to take on new liabilities.
High pressure – low liquidity
According to LSEG, new issuance of high-yield bonds and loans in the US totalled just $13bn this month, down from the monthly average of $52.5bn since 2021. At the same time, credit spreads – an indicator of the cost of borrowing for companies – have risen sharply, reaching their highest level since 2022 (4.61 percentage points according to the BofA Ice Index).
Goldman Sachs predicts an increase in defaults in the high-yield bond segment to 5%, and among companies with excessive debt burdens – up to 8%. This is double last year’s figures.
Shift to private lending
In response to the crisis, some funds have turned to private credit institutions instead of public markets. For example, BayPine, an investment company founded by former Blackstone and Silver Lake executives, turned to Blue Owl Capital to finance its $1.3bn acquisition of CenExel, a biomedical company.
A similar tactic is being used by Patient Square Capital, which, through Citigroup, tried to raise more than $2 billion to buy Patterson Companies, a dental and veterinary firm. After the failure of the public offering, the bank turned to private lenders, although this potentially means losses.
A new era of expensive money?
The current instability may mark the beginning of a new period in US financial history, where cheap debt financing for risky companies will no longer be available. If the tariff pressure policy continues, a new debt cycle with higher rates, lower liquidity and tighter borrowing conditions could be on the horizon.
Banks, investors and companies are still waiting. But with every week that passes, it becomes more and more obvious that markets need predictability, not rhetorical explosions. And if there is no predictability, the fluctuations in the bond market could be just the beginning of greater financial turbulence.
