Beaten-down corporate bonds from automakers could rally after Wednesday’s tariff announcement from U.S. President Donald Trump, making the debt an attractive purchase, according to JPMorgan Chase & Co.
JPMorgan strategists don’t expect the announcement to be as detrimental for automakers as it will be for pharmaceutical companies.
“We don’t believe any of the large automakers are likely to get downgraded to high yield in the coming months,” strategists including Eric Beinstein and Nathaniel Rosenbaum wrote in a note Wednesday. “As such, in the scenario where today’s announcements become a clearing event, autos have room to rally.”
The autos sector is trading at its widest level versus the JPMorgan U.S. Liquid Index (JULI) since July 2020 and is the worst performing major sector, according to the note. Meanwhile, the spread gap between the auto and the pharma sectors is now 0.52 percentage point, or 52 basis points, the widest since December 2023.
That seems extreme on a relative valuation basis, the strategists added. Spreads on automaker bonds would need to widen another 35 basis points to wipe out excess returns — or gains over Treasuries — for the next 12 months from a spread break-even standpoint. While not impossible, this would take the sector to levels concurrent to where BB bonds — one of the safest tiers of junk bonds — were trading as recently as late February, according to the strategists.
Bonds issued by pharmaceutical companies don’t appear to be particularly well-positioned from a macro standpoint, given that a significant portion of pharmaceutical ingredients are imported from countries like India, which are likely to be a focus of reciprocal tariffs. The sector could be a good way to hedge, the strategists added.
U.S. President Donald Trump’s reciprocal tariffs on trading partners are set to take effect today, a day he has proclaimed as “Liberation Day” for American trade. CTV News has extensive coverage across all platforms:
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- CP24.com has developments out of Queen’s Park and what the tariffs mean for the people of the GTHA.
- BNNBloomberg.ca has what this means for the business community, investors, and the market.
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