Tariffs: Diminished Capacity…for Trade Volume that is…

Tariff multiplier effects inflict pain with HY OAS + 59 bps on the day and +102 bps for the 1-month period. Credit is not happy.

Apr 04, 2025

The horror! The horror!

The tariff reality just sent HY OAS above the +400 bps line (to +401 bps). As Trump tees up the new Golden Age, the new HY OAS is still well inside the long-term median of +462 bps. That means the symmetry is still tricky with room to go much wider if retaliation battles break out.
The 1-day move of HY OAS wider by +59 bps and +102 bps for the trailing 1-month gives recognition to the reality that real economic events will be unfolding that push prices higher, costs higher, total trade activity lower, and lead to diminished multiplier economic effects.
The direct transaction activity on each side of the border and within the US when those goods get imported really do matter, and the activity hits a lot of GDP and payroll lines. That is one of the missing thoughts in the minds of the White House trade geniuses (see The Trade Picture: Facts to Respect, Topics to Ponder 2-6-25, Tariffs: Questions to Ponder, Part 1 2-2-25).
Even IG spreads managed to get back into double-digits at +106 bps with +10 bps on the day but remain well inside the long-term median of +130 bps.

The above chart updates the 1-day and rolling 1-month spread deltas that were unfolding in the credit markets as the stock markets were generating the biggest 1-day loss in value since March 16, 2020. According to The Wall Street Journal, the $3.1 trillion in value decline beat a few other March 2020 days and was just short of March 16, 2020 as the COVID losses started to roll in.

I was sitting at my desk staring at my Quotron and the much higher % losses seen in the Oct 1987 crash (-22.6%), but that selloff was hard to explain then and now. This one has an easy explanation. It was caused by a single megalomaniac who has basically abused laws governing trade and tariffs and seized the Congressional constitutional role to self-inflict this one on the US and the World. And there is more to come. He has yet to admit the “buyer pays” the tariff, so humility and self-doubt is not for this guy.

The new Golden Age is off to a rough start…

The above time series updates a comparison of European and Canadian ETF benchmarks against the S&P 500. We will keep tracking this as a frame of reference on the apparent end game of punishing the EU and Canada while driving the US to new heights of splendor with a strategy of punitive tariffs and hostile intent toward allies. All the while, we are embracing Putin and Russia and threatening annexations of NATO ally territories. Not sure this is how Ike and Marshall wrote up the playbook for national security.

Tariff and Trade links:

Reciprocal Tariff Math: Hocus Pocus 4-3-25

Reciprocal Tariffs: Weird Science Blows up the Lab 4-2-25

Tariffs: Stop Hey What’s That Sound? 4-1-25

Tariffs are like a Box of Chocolates 4-1-25

Auto Tariffs: Questions to Ponder 3-28-25

Fed Gut Check, Tariff Reflux 3-22-25

Tariffs: Strange Week, Tactics Not the Point 3-15-25

Trade: Betty Ford Tariff Wing Open for Business 3-13-25

CPI Feb 2025: Relief Pitcher 3-12-25

Auto Suppliers: Trade Groups have a View, Does Washington Even Ask? 3-11-25

Tariffs: Enemies List 3-6-25