MW Despite trade-war angst, junk bonds are holding up as Trump marks 100 days

By Christine Idzelis

The iShares iBoxx $ High Yield Corporate Bond ETF is up since Trump's inauguration day

A riskier part of the fixed-income market appears relatively stable despite hand-wringing over a global trade war, as President Donald Trump marks his 100th day in the White House on Tuesday.

High-yield bonds, known as junk for their below-investment grade ratings, ended Tuesday in positive territory on a total return basis since Trump entered the White House. And they are up slightly since his April 2 rollout of "liberation day" tariffs sent shock waves through markets.

Since April 2, the iShares iBoxx $ High Yield Corporate Bond ETF HYG, an exchange-traded fund that tracks an index of U.S. high-yield corporate bonds, has gained 0.2% on a total return basis through Tuesday, according to FactSet data. The ETF closed Tuesday up a total 0.9% since Trump's inauguration on January 20.

By contrast, U.S. stocks are down since Trump entered the White House in 2025, including a fall in the wake of April 2, as investors fret that his tariffs risk slowing the economy and increasing inflation. Although junk bonds are seen as particularly risky during an economic downturn as they're issued by companies with heavier debt burdens, they are up in 2025.

Credit fundamentals within the U.S. high-yield market so far remain "pretty strong," said Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock, in a phone interview. And although junk bonds may struggle on days when there's "massive risk-off move" in the stock market, some investors may be attracted to their current "all-in yield" of nearly 8%, she said.

Chaudhuri said bond investors should be thinking not just about duration risk but also consider looking for "different sources of income," such as from high-yield, to build a diversified portfolio.

To that end, she likes the iShares Flexible Income Active ETF BINC, which is actively managed to invest across different areas of the fixed-income market globally and whose portfolio currently has some exposure to high-yield bonds. The portfolio of the iShares Flexible Income Active ETF had a short duration of slightly more than 3 years as recently as Monday, according to data on BlackRock's website.

Chaudhuri said she favors the front end and "belly" of the bond market's yield curve, preferring maturities of three years to seven years. Other potential fund options include the iShares 3-7 Year Treasury Bond ETF IEI or the iShares 0-5 Year TIPS Bond ETF STIP, she said.

Shorter duration bonds may help investors manage interest rate volatility stemming from questions around demand for long-term Treasurys due in part to a deterioration in the fiscal outlook, according to a recent investing note led by Chaudhuri. And the front-end of the curve may remain attractive as the Federal Reserve may be limited in how much it can cut interest rates given tariffs risk shocking prices higher in an environment of already elevated inflation, according to the note.

Short-term Treasurys fared relatively well when markets were in turmoil earlier this month.

'Significant GDP drag'

The U.S. bond market is up so far this year, helping to provide a ballast in traditional investment portfolios as stocks struggle with persisting uncertainty over the ultimate size of Trump's sweeping tariffs.

The iShares Core U.S. Aggregate Bond ETF AGG , which tracks an index providing broad exposure to Treasurys, corporate bonds and mortgages, has posted a total return of 3.3% in 2025 through Tuesday, according to FactSet data. The ETF has posted a similar total gain since Trump's inauguration day, and finished Tuesday up a modest 0.3% since he announced "liberation day" tariffs.

Meanwhile, one popular tracker of U.S. gross domestic product recently showed that GDP may have shrunk during the first three months of 2025.

Before Trump even announced "liberation day" tariffs on April 2, the Federal Reserve Bank of Atlanta's GDPNow tracker was estimating a potential first-quarter decline - which market analysts attributed to companies trying to get ahead of his anticipated increases to levies.

"First quarter data should show a significant GDP drag from surging imports, as well as federal government cutbacks," said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a note emailed Monday. "First quarter GDP numbers come out on Wednesday and should paint a picture of stagnation," he said. "We estimate that real GDP was unchanged in the first quarter, following 2.5% growth in the year ended in the fourth."

On Tuesday, the Atlanta Fed's GDPNow model was pointing to a potential 2.7% contraction in real gross domestic product over the first three months of 2025.

Check out: Is recession 'inevitable'? Markets say don't be so sure.

"Corporate bond spreads react quickly when this market senses the possibility of a looming recession," said Nicholas Colas, co-founder of DataTrek Research, in a note emailed on Monday. "This market is, however, slow to respond to more reassuring economic data."

Credit spreads reflect the extra compensation that investors demand over comparable Treasurys for taking risk in corporate bonds. They typically widen in times of tumult.

In a sign of investors demonstrating a stronger appetite for risk last week, credit spreads tightened "meaningfully," according to a CreditSights report on Monday.

U.S. high-yield bond spreads ended Friday at 367 basis points, the report shows. That's down from 461 basis points at this month's peak on April 7, according to data from the ICE BofA US High Yield Index Option-Adjusted Spread index on the website of the St. Louis Fed.

"Corporate bond spreads have spiked this month because of tariff and economic uncertainty, but even at their worst levels," they were lower than in March 2023, "when Silicon Valley Bank failed and capital markets were concerned about a credit-crunch induced recession," said Colas. "As uncomfortable as it has been to see corporate bond spreads increase so quickly, the fact that they are now declining again is a reassuring signal about recession risk."

'Take solace'

Companies have "pretty healthy balance sheets," partly because many refinanced debt when interest rates were low in 2020 and 2021, according to Rebecca Venter, senior fixed-income product manager at Vanguard.

Although companies are facing uncertainty around tariffs, "we take solace in the fact that the impact is going to be from a really strong starting point of fundamentals," she said in a phone interview

Looking at the performance of fixed income more broadly this year, Venter said bonds have served the supportive role that she would expect in portfolios. That is, the broad U.S. bond market is up so far in 2025, providing a ballast when stocks are down year to date, she said.

The S&P 500 index SPX finished Tuesday down 5.5% in 2025, after paring losses this month. The index closed 1.9% below its April 2 level, remaining on course to potentially see a third straight month of declines.

In the bond market, the yield on the 10-year Treasury note BX:TMUBMUSD10Y fell Tuesday to 4.171%, the lowest rate since April 7 based on levels at 3 p.m. Eastern time, according to Dow Jones Market Data. Bond yields and prices move in opposite directions.

-Christine Idzelis

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April 29, 2025 20:43 ET (00:43 GMT)

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