Goldman Strategists Warn of Risks for Credit as Tariffs Rattle

Investors should hedge corporate bond investments because yield premiums may widen if US President Donald Trump's tariff threats continue to rattle markets, according to Goldman Sachs Group Inc. strategists.

“We continue to advocate taking advantage of the still-low cost of hedging to add downside protection,” Goldman Sachs credit strategists led by Lotfi Karoui wrote in a note. “One key lesson from the 2018 episode is that a buildup of premium is possible if headlines persist or if the scope of tariffs expands.”

Spreads on global investment-grade corporate notes have widened in the last seven consecutive days after tightening to a 17-year low earlier this month, a Bloomberg index shows.

Credit investors are becoming increasingly worried that Trump could trigger a damaging tit-for-tat trade war with other nations that could drag down business and consumer sentiment.

Treasury yields edged lower Friday while risky assets were sold off, after Trump said the US plans to impose 25% tariffs on Canada and Mexico from March 4 and an additional 10% levy on Chinese imports. China on Friday threatened to hit back at Trump's tariff proposals.

In 2018, the first Trump administration brawled with China for much of the year over tariffs. Spreads on US investment-grade corporate bonds widened by 60 basis points to 153 basis points during the year, according to a Bloomberg index.