LIVE MARKETS-Tariff pain: implications for credit spreads

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TARIFF PAIN: IMPLICATIONS FOR CREDIT SPREADS

U.S. President Trump's deadline for reciprocal tariffs is now less than two weeks away, and investors are again starting to question how possible reciprocal tariffs will impact global growth and financial markets.

Barclays head of European credit strategy Soren Willemann has revised near-term credit spread forecasts wider, and will remain defensive until more clarity emerges on Trump's trade policy.

"The macro picture is both darkening and becoming cloudier, on a number of fronts," Willemann says.

"As we await more tangible policy views from the US on tariff regimes (expected from 2 April), we believe uncertainty about Europe will increase, not helped by the 'known unknown' of weakening US growth," Willemann adds.

For Europe, Barclays econonists recently revised lower their 2025 growth outlook, before expecting a strong rebound in 2026 once the full effect of German fiscal easing and rearmament is felt.

"Put simply: tariff pain now, fiscal growth upside later," Willemann says.

The near-term downgraded growth outlook, for not only Europe but also the U.S., has prompted a rethink in Barclays credit spread forecasts.

"Assuming US spreads widen out, in line with our base case, this should cause European spreads to also gradually widen out – we see €IG reaching 110bp and €HY reaching 350bp," Willemann says.

The extra yield investors demand for holding high-yield debt over the risk free rate, measured by the ICE BofA euro high yield index .MERHE00, fell to its lowest since 2018 in February at 274 bps. It was last at 304 bps.

(Samuel Indyk)

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