BlackRock Warns of Credit Market Risks Amid Global Trade War Tensions

BlackRock Inc., the world’s largest asset manager, warns of rising credit market risks due to the global trade war, which is deteriorating credit quality and widening spreads. Mitch Garfin, BlackRock’s co-head of leveraged finance, expects further stress in risk assets and a decline in corporate credit fundamentals. The trade war and tariff uncertainty are increasing market stress, affecting investor sentiment and corporate balance sheets. BlackRock advises reassessing exposure to high-yield credit and exploring alternative assets. The firm highlights systemic risks for institutional investors due to potential defaults and refinancing challenges.

Credit Spreads Expected to Widen Further

Speaking on Bloomberg Intelligence’s Credit Edge podcast, Mitch Garfin emphasized that the current environment is likely to push credit spreads wider. “We’re likely to see spreads widen from here as we see further deterioration in risk assets and in overall credit quality,” Garfin stated. This assessment reflects BlackRock’s broader view that the credit market has not yet fully priced in the economic damage stemming from the prolonged trade conflict.

The widening of credit spreads—essentially the premium investors demand to hold corporate debt over risk-free government bonds—signals growing concern about the ability of companies to service their debt. As spreads increase, borrowing costs rise, particularly for lower-rated issuers, potentially triggering a wave of refinancing challenges and defaults.

Trade War and Tariff Uncertainty Fueling Market Stress

BlackRock’s internal data highlights a sharp increase in tariff-related news coverage, a proxy for market anxiety over trade policy. According to BlackRock Systematic, mentions of “tariffs” in news articles have reached new highs as of March 31, 2025, based on a rolling 90-day average. This surge in attention reflects the persistent uncertainty surrounding global trade relations, particularly between the U.S. and China, and its ripple effects across supply chains and corporate earnings.

The firm’s analysts point to elevated readings in the U.S. Economic Policy Uncertainty Index—above the 200 threshold—as further evidence of a volatile macroeconomic backdrop. This uncertainty is contributing to investor caution and a reassessment of risk across asset classes, particularly in credit markets where liquidity can evaporate quickly during periods of stress.

Deterioration in Credit Quality Across Sectors

BlackRock’s credit team has observed a broad-based decline in credit quality, particularly in the leveraged finance space. The firm’s analysis, based on data from Refinitiv and FactSet, indicates that corporate fundamentals are weakening, with rising leverage ratios and declining interest coverage metrics across several sectors.

The impact is especially pronounced in industries exposed to global trade flows, such as manufacturing, semiconductors, and industrials. According to BlackRock Fundamental Equities, companies in these sectors are facing margin compression due to higher input costs and disrupted supply chains, which in turn is eroding their creditworthiness.

Moreover, the firm notes that the $2.7 trillion in institutional debt maturing over the next 30 months poses a significant refinancing risk. As borrowing costs rise and investor appetite for risk assets wanes, companies may struggle to roll over their debt, potentially triggering a wave of downgrades and defaults.

Risk Assets Under Pressure

BlackRock’s outlook for risk assets remains cautious. The firm’s equity and credit strategists have flagged a deterioration in investor sentiment, driven by both macroeconomic headwinds and sector-specific challenges. According to data compiled by BlackRock Fundamental Equities, equity outflows from European markets have accelerated, while dispersion in stock performance has increased, signaling a more selective and risk-averse investment environment.

In this context, BlackRock is advising clients to reassess their exposure to high-yield credit and other risk assets. The firm’s portfolio managers are reportedly shifting toward higher-quality issuers and sectors with more resilient cash flows, while also exploring alternative assets as a potential hedge against volatility.

Implications for Institutional Investors

The implications of BlackRock’s warning are particularly significant for institutional investors, including pension funds and insurance companies, which hold large allocations to corporate credit. As credit spreads widen and defaults rise, these institutions could face mark-to-market losses and funding shortfalls.

Grant Cardone, a prominent investor and commentator, recently echoed similar concerns, warning that the looming maturity wall of institutional debt could “drag down 300 banks and some pension funds.” While BlackRock has not made such specific predictions, the firm’s analysis underscores the systemic risks posed by deteriorating credit conditions in a highly interconnected financial system.

BlackRock’s Strategic Response

In response to these challenges, BlackRock is emphasizing the importance of active management and credit selection. The firm’s thought leadership events and market outlooks have increasingly focused on navigating “choppy markets” and identifying “alpha opportunities amid stock dispersion.” Portfolio managers are being encouraged to adapt strategies to account for tax sensitivity, liquidity constraints, and sector-specific risks.

Additionally, BlackRock has highlighted the growing relevance of alternative assets in the current environment. The firm recently described 2025 as “the year of alternative assets,” pointing to increased investor interest in private credit, infrastructure, and other non-traditional asset classes that may offer more stable returns in a volatile market.

References

• Equity Market Outlook | BlackRock
• BlackRock Government Money Market Portfolio | MNRSV | Institutional
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