Trump tariffs freeze US junk bond market, rattling Wall Street and private equity deals

Trump’s tariffs freeze the junk bond market, private equity pivots are costly.

A surge in market volatility triggered by US President Donald Trump’s sweeping tariff announcements earlier this month has caused a near-total freeze in the US high-yield bond market, dealing a serious blow to corporate borrowers, private equity firms, and Wall Street banks. Since April 2, when Trump launched his “reciprocal tariffs,” there have been no new issuances in the $1.4 trillion junk bond market, reflecting deep investor anxiety about a potential US recession, the Financial Times reported.

The chilling effect on risk appetite has brought numerous debt-funded deals to a halt, including financing packages for HIG Capital’s purchase of Converge Technology and ABC Technologies’ acquisition of TI Fluid Systems. Bankers from Citigroup, JPMorgan Chase, and Morgan Stanley have reportedly pulled back on commitments to finance such transactions, while buyout firms are increasingly turning to private credit funds to fill the funding gap—often at higher borrowing costs.

Banks now face mounting exposure to billions in short-term bridge loans, taken on with the expectation that traditional debt investors would later absorb the risk. As credit spreads surged to their highest point in nearly two years—hitting 4.61 percentage points before retreating slightly following Trump’s temporary tariff pause—banks began redrawing loan terms and boosting interest rates to protect themselves.

Goldman Sachs has revised its forecast for defaults in the high-yield and leveraged loan space, raising expected default rates to 5% and 8% respectively, citing multiple stressors facing the leveraged finance market. So far in April, only $13 billion in junk bonds and leveraged loans have been issued—far below the monthly average of $52.5 billion since 2021, according to LSEG data.

The freeze has also disrupted the investment-grade bond market, which saw just one deal priced between April 2 and Trump’s 90-day pause announcement. In response, Citigroup has pivoted from the public debt markets to private credit to raise over $2 billion for Patient Square Capital’s acquisition of Patterson Companies, a dental and veterinary health firm. The switch is expected to increase costs and possibly result in losses.

Private equity firms are now increasingly dependent on nonbank lenders. BayPine, a firm backed by Blackstone and Silver Lake alumni, recently relied on Blue Owl, a major private credit fund, to finance its $1.3 billion acquisition of life sciences company CenExel.

As the corporate bond market braces for more turbulence, the consequences of Trump’s trade policy are sending ripples through Wall Street’s most leveraged corners—reviving fears of stalled dealmaking, higher default rates, and deepening economic uncertainty.