Trade Tensions Dampening U.S. Corporate Bond Market

The market for U.S. high-grade corporate bonds to fund mergers has fallen to its lowest in five years due to trade tensions under President Trump. Despite expectations for increased bond issuance, uncertainty and tariff threats have led to a slump, affecting banks, investors, and economic activity.

The U.S. corporate bond market is facing a significant downturn as high-grade bond issuance for merger funding plummets to its lowest in five years. Economic uncertainties fuelled by President Trump's trade policies are causing businesses to halt mergers, adversely affecting both borrowers and financial institutions.

Expectations were high that regulatory changes and tax cuts from the Trump administration would lead to a surge in deal activity, potentially injecting $250 billion to $300 billion in investment-grade bonds this year. Instead, the threat of tariffs and ensuing market volatility has prompted a cautious pause, with U.S. M&A activity dropping 3% in Q1.

With only $8 billion in acquisition financing currently projected in the pipeline, compared to $100 billion previously, the market is witnessing tightening credit spreads. Experts warn that continued slump could not only hurt banks' revenues but also fail to satisfy burgeoning investor cash seeking high yields in the face of prospective interest rate cuts.

(With inputs from agencies.)