Credit markets across Asia are showing growing signs of stress, as heightened global trade tensions spill into fixed-income instruments. The strain follows the U.S. administration’s sweeping import tariffs, which have roiled investor sentiment and raised fears of a broader economic slowdown.
Sovereign credit spreads for major regional economies such as China, Vietnam, Indonesia, Thailand, and Malaysia have also widened. Indonesia and Thailand, in particular, have seen their spreads reach levels not observed since 2022, reflecting heightened anxiety about the ability of these economies to weather prolonged trade disruptions.
The deterioration in credit sentiment comes on the heels of steep selloffs in equity markets from Hong Kong to Sydney. U.S. equity futures also tumbled by nearly 4% during Asia trading hours, underscoring the global ripple effects of the U.S. tariff policy. These cross-market moves suggest that investors are seeking refuge in safer assets while reducing exposure to risk-heavy instruments like corporate bonds.
In the U.S., spreads between Treasury yields and investment-grade corporate debt have widened by 20 basis points since the tariffs were announced. High-yield, or “junk” bond spreads have surged even further—by about 96 basis points—pointing to increased risk aversion and shrinking appetite for lower-rated debt.
As global financial markets brace for potential retaliatory measures and further policy shocks, credit markets are emerging as a key barometer of investor unease. The current environment is marked by elevated volatility, a flight to safety, and tightening liquidity—conditions that could worsen if trade disputes escalate further.
For now, Asia’s credit markets are navigating a fragile period, with the prospect of sustained volatility as markets reassess risks in light of geopolitical and economic uncertainty.
