UBS looks at how Trump’s tariff plans could affect credit spreads Via Investing.com

Investing.com – U.S. corporate debt is expected to end the year slightly wider than its recent benchmarks as inflation and growth ease, according to UBS analysts.

However, in a note to clients this week, analysts led by James Martin suggested that President Donald Trump’s plan to impose large fines on friends and opponents alike poses a significant risk to this proliferation outlook. when debts.

In particular, heavy payments can lead to “purposeful loss of corporate profits”, analysts have warned. They estimated that the company’s earnings could be cut by more than 6% if Trump goes ahead with his campaign promise to slap a 60% tariff on Chinese imports and additional tariffs. of 10% worldwide.

Since Trump took office, he has held off on issuing such tough measures, although he has threatened Canada, Mexico, China and the European Union with a possible deadline of March 1 before imposing tariffs on them.

If the tariffs go into effect, companies will see severe network pressure, while the tariffs could add renewable fuel to inflation and prompt the Federal Reserve to leave interest rates higher, analysts have noted.

The comments come after a sell-off in US Treasury yields earlier this month put pressure on investment-grade bonds, which are more expensive than their risk-free government counterparts.

Although the rise in Treasury yields, which move inversely with prices, has slowed in recent days with a colder-than-expected December figure, corporate loans have been weighed down by high investor demand. of debts.

Many companies then rushed to get money quickly and avoid a sharp rise in borrowing costs, Reuters reported, citing analysts. Banks estimate that between $175 billion and $200 billion will be raised from new bond offerings this month, according to Inform (LON:) Global Markets data reported by Reuters.

“The past few weeks have shown the stability of credit spreads as rates and interest rates struggle with inflation likely to rise and the Fed’s mild tapering this year,” the analysts wrote.

“If (the rate of per capita consumption, the rate of inflation chosen by the Fed) ((starts) to return to 3%, we can expect that the spread will grow, but the fundamentals are stable and the infection Weakness from (real estate) should help moderate growth.”