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America’s risky corporate borrowers have been shut out of the bond market since Donald Trump’s tariff blitz, in a freeze that is reverberating across Wall Street and which threatens a tentative rebound in dealmaking.
Lowly-rated companies have failed to sell any debt in the $1.4tn US high-yield bond market since Trump unleashed market turmoil and raised fears of a US recession with the wave of tariffs he announced earlier this month.
The freezing of the junk bond market threatens to hit private equity firms that frequently rely on it to help fund their takeovers. It also raises the risk for banks that provide short-term loans for such deals before buyout firms then secure longer-term financing in the bond market.
“Everything has been on hold,” said Bob Kricheff, the head of multi-asset credit at investment firm Shenkman Capital Management. “Nobody is trying to price a deal in this environment.”
Trump’s aggressive trade agenda has had a chilling effect on investors’ willingness to back riskier deals, with high-yield bond funds suffering record outflows in the week following Trump’s April 2 tariff announcement.
Bond sales to finance HIG’s purchase of Converge Technology Systems and the takeover of TI Fluid Systems by Apollo-backed ABC Technologies are among the deals to have been halted this month due to the market turmoil.
Since Trump announced his “reciprocal tariffs”, banks have been redrawing the terms of loans they offer buyout clients to finance acquisitions and increasing interest rates in a bid to shield themselves from losses.
Some, including Citigroup, Morgan Stanley and JPMorgan Chase, had pulled the plug on bond and loan funding deals that high-yield investors had so far been unwilling to back in traditional debt markets, said people briefed on the matter.
Wall Street banks face potential losses on billions of dollars of short-term loans they had committed to in the expectation that junk-bond investors would ultimately take on the debt.
But banks can be wrongfooted if the interest rate they have agreed to provide differs sharply from market levels, as can be the case in times of stress.
The market sell-off comes as the private equity industry — and the banks that have long profited from their deals — struggles with a drop-off in dealmaking and fading hopes of a revival amid a looming threat of a recession.
Jeff Kivitz, the chief investment officer of investment firm Canyon Partners, said that “some existing commitments could get stuck on bank balance sheets”, adding that banks appeared “less willing to provide indications for new commitments amidst the volatility”.
The market for new investment-grade bonds has also sputtered, with only one new deal pricing between “liberation day” on April 2 and the president’s order pausing tariffs for 90 days last Wednesday.
Bankers and fund managers have been closely scrutinising a sharp increase in so-called credit spreads, a measure of the extra cost corporate borrowers have to pay to borrow compared with US government debt and a marker of appetite for risk.
Spreads for high-yield debt shot to the highest level in nearly two years last week, hitting 4.61 percentage points before retreating slightly after Trump agreed to pause some tariffs, according to Ice BofA index data.
Goldman Sachs last week raised its forecast for defaults by high-yield and leveraged loan borrowers this year to 5 per cent and 8 per cent respectively, up from 3 per cent and 3.5 per cent.
“While lower than typical recession levels, these forecasts are well above the long-term averages and reflect multiple simultaneous headwinds to leveraged finance markets,” said Lotfi Karoui, chief credit strategist at Goldman.
Just $13bn in high-yield bonds and loans have been issued so far this month, well below the month-to-date average of $52.5bn since 2021, according to LSEG data.
In another sign of the freeze in the junk bond market, Citigroup has paused an effort to raise more than $2bn in high-yield bonds and loans through traditional debt managers to finance private equity firm Patient Square Capital’s takeover of dental and veterinary health company Patterson Companies.
The bank is now attempting to raise the capital from private credit funds, which could prompt losses, according to people briefed on the matter. Private credit funds tend to invest in riskier loans and, as a result, charge higher interest rates to borrowers for the added risk.
JPMorgan, Citi, Morgan Stanley, HIG, Patient Square and ABC Technologies declined to comment. Patterson and Converge Technology did not respond to a request for comment.
Additional reporting by Oliver Barnes
