By Christine Idzelis
‘Investors should brace for more market volatility in the coming weeks and months as Trump’s trade policy becomes more coherent,’ says State Street’s Michael Arone
U.S. stock and bond markets swung to gains Wednesday on President Donald Trump’s pause on some tariffs for many countries – but a global trade war still has investors on edge.
“Investors should brace for more market volatility in the coming weeks and months as Trump’s trade policy becomes more coherent,” said Michael Arone, chief investment strategist for the U.S. SPDR business at State Street Global Advisors, in emailed comments Wednesday. “The trade war may not be over, but at least for today, investors have won the battle.”
While the S&P 500 SPX surged after Trump said Wednesday afternoon that he was pausing some tariffs on many countries for 90 days, it ended the trading session down 2.8% so far in April. The iShares Core U.S. Aggregate bond ETF AGG, which provides broad exposure to the U.S. investment-grade bond market, has lost a total 0.7% so far this month, according to FactSet data.
“Although President Donald Trump was able to resist the stock-market selloff, once the bond market began to weaken too, it was only a matter of time before he folded on his eye-wateringly high tariffs,” said Paul Ashworth, chief North America economist at Capital Economics, in a note Wednesday.
Trump wrote in a Wednesday afternoon post on his social-media platform Truth Social that he was raising the tariff on China to 125%, while authorizing a 90-day pause on levies on the many countries that have not retaliated against the U.S. and have been in trade negotiations with the White House. “I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump wrote in the post.
“Our working assumption now will be that, cowed by the market response, Trump will repeatedly extend the ‘pause,’ meaning that this will end up looking a lot like the 10% universal tariff that he campaigned on,” Ashworth said. “In return, other countries will offer minor concessions on their own tariffs and trade practices,” he said. “As for China-U.S. relations, it is difficult to see either side backing down in the next few days.”
Many investors have feared the “reciprocal” tariffs announced by Trump on April 2 risked resulting in a recession by sparking a global trade war. Trade tensions between the U.S. and China have escalated since then with a series of retaliatory tariffs.
High-yield corporate debt, known as junk bonds for their below-investment-grade ratings, saw a sharp bounce on Wednesday, but also remained in the red so far in April amid fears that companies with heavier debt burdens may become more vulnerable in an economic slowdown.
The SPDR Bloomberg High Yield Bond ETF JNK, which tracks an index of high-yield corporate bonds, has lost a total of 1.1% in April through Wednesday, according to FactSet data. The iShares iBoxx $ High Yield Corporate Bond ETF HYG ended Wednesday down 0.9% on a total return basis so far this month.
For investors looking for buying opportunities after the recent selloff in markets, “this is not the environment to go be a hero,” said Jeffrey Sherman, DoubleLine’s deputy chief investment officer, in a phone interview before Trump hit pause on his tariff plan.
Volatility in stock and bond markets has surged in April, remaining elevated on Wednesday even after subsiding on Trump’s announcement.
Junk-bond spreads, or the premium that investors receive over comparable Treasurys for taking risk in such corporate debt, have recently widened in a sign of anxiety over the global trade war.
Spreads in the U.S. junk-bond market increased to 457 basis points on April 8 from 342 basis points on April 2, according to data on the website of the Federal Reserve Bank of St. Louis, which cites the BofA US High Yield Index Option-Adjusted Spread index.
Rising Treasury yields
U.S. Treasury yields have been jumping lately following their initial decline after April 2.
The yield on the 10-year Treasury note climbed 15.1 basis points on Wednesday to 4.410%, rising for a third straight day. That marked the 10-year Treasury yield’s BX:TMUBMUSD10Y largest three-day gain since June 14, 2022, based on yields at 3 p.m. Eastern, according to Dow Jones Market Data.
Bond prices drop when yields rise, as seen in 2022 when the Federal Reserve was aggressively raising interest rates to battle high inflation. Investors have been looking for places to hide in the tariff-related tumult in markets, with recent flows in the U.S. exchange-traded-fund industry showing investors were seeking safety in shorter-duration Treasurys in particular.
That suggested investors were thinking, “let’s find a place to wait this out,'” said Steve Laipply, BlackRock’s global co-head of fixed-income ETFs, in an interview. For example, he said the iShares 0-3 Month Treasury Bond ETF SGOV was attracting inflows earlier this week.
By contrast, the iShares iBoxx $ High Yield Corporate Bond ETF had outflows earlier this week, Laipply said. But he added that the fund saw record trading volume on Monday of $14.4 billion, in a sign that investors were turning to the fund to navigate risk in markets.
Shunning risky debt
Investors in the U.S.-listed ETF market shunned riskier corporate credit in April while piling into short-term government bonds, according to Matt Bartolini, head of SPDR Americas research at State Street Global Advisors. Short-term government bond ETFs took in $8.2 billion this month through April 7, including inflows into the SPDR Bloomberg 1-3 Month T-Bill ETF BIL, he found.
By his tally, ETFs that buy high-yield bonds saw $3.5 billion of outflows this month through April 7. Over the same stretch, investors pulled $3 billion from ETFs that invest in leveraged loans and collateralized loan obligations over the same stretch, similarly turning away from exposure to riskier corporate debt, according to Bartolini.
“They’re lowering the volatility of their portfolio,” he said by phone.
Many investors are worried that tariffs may increase inflation at the same time that growth slows, with the U.S. economy potentially heading toward a stagflationary environment.
For that dynamic, investors may also consider a fund like the F/m Ultrashort Treasury Inflation-Protected Security (TIPS) ETF RBIL, Alexander Morris, chief executive of F/m Investments, said in an interview. Investors will get a fresh reading on inflation on Thursday.
Meanwhile, the tariff shockwaves that Trump sent on April 2, which he referred to as “liberation day,” continue to disrupt the global trading order.
“You can’t un-ring that bell,” said Morris. “Everyone is trying to sort out what’s next.”
-Christine Idzelis
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
04-09-25 1950ET
Copyright (c) 2025 Dow Jones & Company, Inc.