Market Pain Spreads to Asia Credit as Tariff Fears Mount

Image Credit: Reuters

Credit markets in Asia experienced turbulence on Monday, with the cost of insuring against corporate and sovereign defaults rising as recession concerns spread across financial markets. 

The five-year credit default swap (CDS) spread for the Markit Itraxx Asia ex-Japan index, covering sovereign and corporate debt, increased by around 26 basis points, reaching its highest level since August of the previous year, according to data from S&P Global Market Intelligence. Sovereign CDS spreads for countries like China, Vietnam, Indonesia, Thailand, and Malaysia also widened, with Indonesia and Thailand seeing levels not seen since 2022.

This surge in credit pressure came after, rather than before, a sharp decline in global stock markets following U.S. President Donald Trump’s announcement of the highest tariffs on U.S. imports in over a century. By mid-session in Asia, U.S. equity futures had fallen nearly 4%, and credit markets followed suit with sharp sell-offs across equities from Hong Kong to Sydney.

“It’s not just the equity market. We’ve seen credit spreads widen significantly, and there are also signs of fund flows shifting as investors seek cash or commodities,” said Simon Ward, head of debt capital markets for Australasia at Mizuho in Sydney. He predicted the debt market would likely enter a "wait and see" mode, with deal activity slowing due to rising volatility.

The spread between U.S. Treasuries and the ICE BofA index of U.S. investment-grade debt has widened by about 20 basis points since Trump’s tariff announcement, while the spread for high-yield U.S. debt has increased by roughly 96 basis points.

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author