--- title: Tariffs rattle Credit markets, lower US Treasury yields lift IG returns description: Interest rates and credit spreads swung sharply following weak July payrolls and a wave of new tariffs, though many carve-outs and exemptions have softened the overall impact. image: https://blog.syzgroup.com/hubfs/20250805%20pic.jpg --- [![Syz Private banking](https://blog.syzgroup.com/hs-fs/hubfs/Logo.png?width=140&name=Logo.png "Syz Private banking")](https://www.syzgroup.com/fr) ## **Thinking** out loud [Subscribe](https://25733253.hs-sites-eu1.com/newsletter-signup?hsLang=en) [![Contact Us](https://hubspot-no-cache-eu1-prod.s3.amazonaws.com/cta/default/25733253/3d762f49-4e71-4f99-97b1-bf6781ef3da2.png)](https://hubspot-cta-redirect-eu1-prod.s3.amazonaws.com/cta/redirect/25733253/3d762f49-4e71-4f99-97b1-bf6781ef3da2) - [OUR SERVICES](https://www.syzgroup.com/en/private-banking) - [ABOUT SYZ](https://www.syzgroup.com/en/about/welcome-to-syz) - [CAREERS](https://www.syzgroup.com/en/careers) - [PRESS](https://www.syzgroup.com/en/news) - [Blog Homepage](https://blog.syzgroup.com) - [Slow Food for Thought](https://blog.syzgroup.com/slow-food-for-thought) - [Focus](https://blog.syzgroup.com/slow-food-for-thoughts/tag/focus) - [Asset allocations Insights](https://blog.syzgroup.com/slow-food-for-thoughts/tag/asset-allocation-insights) - [Market Outlook](https://blog.syzgroup.com/slow-food-for-thoughts/tag/market-outlook) - [Swiss Perspectives](https://blog.syzgroup.com/slow-food-for-thoughts/tag/swiss-perspectives) - [Syz the moment](https://blog.syzgroup.com/syz-the-moment) - [Crypto corner](https://blog.syzgroup.com/crypto-corner) - [Syz AI Insights](https://blog.syzgroup.com/syz-ai-insights) - [Fast Food for Thought](https://blog.syzgroup.com/fast-food-for-thought) - [The week in seven charts](https://blog.syzgroup.com/fast-food-for-thoughts/tag/the-week-in-seven-charts) - [Flash](https://blog.syzgroup.com/fast-food-for-thoughts/tag/flash) - [Fixed Income Weekly](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-fixed-income) - [Equity Weekly](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-equities) - [Global markets outlook](https://blog.syzgroup.com/fast-food-for-thoughts/tag/global-markets-outlook) - [CONTACT](https://www.syzgroup.com/en/contact-us/form) - [ENGLISH](https://www.syzgroup.com/) - [FRANÇAIS](https://www.syzgroup.com/fr) - [Slow Food for Thought](https://blog.syzgroup.com/slow-food-for-thought) - [Focus](https://blog.syzgroup.com/slow-food-for-thoughts/tag/focus) - [Asset allocations Insights](https://blog.syzgroup.com/slow-food-for-thoughts/tag/asset-allocation-insights) - [Market Outlook](https://blog.syzgroup.com/slow-food-for-thoughts/tag/market-outlook) - [Swiss Perspectives](https://blog.syzgroup.com/slow-food-for-thoughts/tag/swiss-perspectives) - [Fast Food for Thought](https://blog.syzgroup.com/fast-food-for-thought) - [Flash](https://blog.syzgroup.com/fast-food-for-thoughts/tag/flash) - [Weekly Fixed Income](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-fixed-income) - [The week in seven charts](https://blog.syzgroup.com/slow-food-for-thoughts/tag/the-week-in-seven-charts) - [Global markets outlook](https://blog.syzgroup.com/fast-food-for-thoughts/tag/global-markets-outlook) - [Weekly Equities](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-equities) - [Syz the moment](https://blog.syzgroup.com/syz-the-moment) - [Crypto corner](https://blog.syzgroup.com/crypto-corner) - [Syz AI Insights](https://blog.syzgroup.com/syz-ai-insights) - [Our Services](https://www.syzgroup.com/en/private-banking) - [About Syz](https://www.syzgroup.com/en/about/welcome-to-syz) - [Careers](https://www.syzgroup.com/en/careers) - [Press](https://www.syzgroup.com/en/news) - [Contact](https://www.syzgroup.com/en/contact-us/form) - [English](https://www.syzgroup.com/) - [Français](https://www.syzgroup.com/fr) ## **Sign-up** for our newsletter This website uses cookies to enhance user navigation and to collect statistical data. 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[![Adrien Pichoud](https://blog.syzgroup.com/hubfs/_ERC1697%202.jpg)](https://blog.syzgroup.com/fast-food-for-thought/author/adrien-pichoud) [**Adrien Pichoud**](https://blog.syzgroup.com/fast-food-for-thought/author/adrien-pichoud) Head of Fixed Income **Tuesday, 08/05/2025** | - ![Pdf](https://blog.syzgroup.com/hubfs/pdf%20(1).png) - - - - ## **What happened last week?** **Central banks** The US Federal Reserve did not change its current policy stance and kept its key rates unchanged at 4.25%-4.5% at the last meeting (30 July) as widely expected. Two of the seven Federal Open Market Committee (FOMC) governors - Michelle Bowman and Christopher Waller, both Trump appointees – dissented, voting in favour of a 25-basis point cut. Despite this lack of unanimity, the FOMC’s statement emphasised that the majority of members deem the current policy stance as appropriate. Initially, the prospect of a September rate cut diminished following the press conference, but market expectations shifted dramatically following the release of very weak July payroll data. Elsewhere, major central banks such as the Bank of Japan (BoJ), the ECB and the Bank of Canada also held rates steady at recent meetings. However, the BoJ raised its inflation outlook, setting a rather “hawkish” signal for a more restrictive monetary policy at some point in the future. The unexpectedly steep 39% tariffs on Swiss imports have taken Swiss officials by surprise. This may intensify pressure on the Swiss National Bank and potentially reviving the prospect of a return to negative interest rates. Among the larger emerging markets, the Banca Central do Brazil maintained its benchmark rate at 15% but will face heightened challenges after the U.S. imposed on about half of the Brazilian exports to the U.S at stunning 50%. Next week, market attention will turn to the Bank of England meeting, where consensus points to a rate cut. Meanwhile, the Mexican central bank is also expected to make a step lower. The Reserve Bank of India is widely forecast to hold rates steady. **Credit** Credit markets were unsettled by a wave of tariff announcements, but falling Treasury yields more than offset widening credit spreads, resulting in positive total returns for US investment grade (IG) bonds. The US imposed a 39% tariff on Swiss imports—well above expectations—which led to a notable weakening of the Swiss franc against the dollar. Earlier in the week, markets were buoyed by a new EU-US trade deal. The US set auto tariffs at 15%, far below initial threats, in exchange for EU commitments to purchase US energy, AI chips, and military equipment. As a result, EUR IG autos outperformed both last week and year-to-date. The 50% tariff on copper will exempt concentrates – raw materials such as copper ores and scrap - making the effective sector impact more moderate than feared. S&P upgraded Digital Realty to BBB+ and American Tower, while assigning a positive outlook to Cellnex, highlighting the sector’s strong fundamentals and predictable cash flows. EUR IG funds saw their largest weekly inflow since September 2024, while money market funds posted the biggest outflow in 18 weeks. By the end of the week, credit spreads widened across both U.S. and European corporates, with significant widening in U.S. High Yield (HY). Credit spreads widened on both sides of the Atlantic last week, with US HY seeing the most significant move. US IG spreads rose 4 bps to 82 bps (HY +29 bps to 313 bps), but US IG ETFs gained +0.6% for the week (+4.5% YTD) amid lower Treasury yield. Euro IG spreads widened 2 bps to 81 bps, and Euro HY 3 bps to 281 bps, with Euro IG ETFs up 0.1% (+2.1% YTD) and Euro HY ETF down 0.1% (+3.3% YTD). Riskier segments edged lower to stable: euro hybrids lost 0.1% (+3.5% YTD), while AT1s were flat (+5.1% YTD). Despite last week’s widening, credit spreads remain historically tight. Light summer issuance may keep them contained, but the September supply wave could test market resilience if rally fatigue sets in. **Rates** US interest rates experienced significant volatility last week. The disappointing July payroll data triggered sharp moves across the US Treasury curve: the 2-year yield dropped 24 basis points to 3.68%, while the 10-year yield declined 17 basis points to 4.22%. In contrast, the 10-year German Bund was rather stable. The weaker-than-expected US jobs report—non-farm payrolls rose just 73,000 versus expectations of 104,000, and unemployment edged up to 4.2%—prompted markets to swiftly reprice expectations for Fed rate cuts. September now appears poised for a cut, with debate shifting between a standard 25-basis-point move and a potential 50-basis-point "jumbo" cut. Meanwhile, US core PCE inflation for Q2 came in at 2.8% year-over-year, slightly above forecasts. German Bund yields also declined, but far less dramatically than their US counterparts: the 2-year yield fell by just 2 basis points, while the 10-year slid 4 basis points. In the euro area, headline CPI for July slightly exceeded expectations at 2.0% year-over-year. In Switzerland, CHF rates fell sharply in response to the 39% tariff announcement. The Swiss Confederation 2-year yield declined by 5 bps to -0.18%, while the 10-year yield dropped 12 bps to 0.29%. In Japan, the 10-year JGB yield retreated by 10 bps to 1.5%, after briefly reaching a 16-year high of 1.6%. **Emerging market** Emerging market (EM) sovereign dollar bonds posted gains last week, supported by falling US Treasury yields. Mexico and Argentina were among the outperformers. Mexico faces 25% tariffs, but with USMCA-compliant goods exempted, the effective tariff rate will be high single digit. BRICS countries—Brazil, Russia, India, China, and South Africa—voiced strong opposition to the tariffs. In particular, the 50% tariff on Brazil and 30% on South Africa appear to serve political aims: the former is to pressure President Lula related to the prosecution of former President Bolsonaro, while the latter targets South Africa over alleged discrimination against the Afrikaner white minority. Brazil sovereign bonds underperformed following the 50% US tariff announcement. However, extensive carve-outs on key Brazilian exports—including aircraft, wood pulp, energy, fertilisers and orange juice — will face only a 10% tariff. This is a notable relief for Embraer, with 63% of its aircraft exports destined for the US. India was hit with a 25% tariff, explicitly linking its purchases of Russian oil and arms. Global EM debt funds saw continued inflows. The VanEck J.P. Morgan EM Local Currency Bond ETF slipped 0.5% last week amid dollar strength, while EM USD sovereign and corporate bond indices each rose 0.4%. The iShares USD Asia High Yield Bond ETF fell 0.6%. Credit spreads remain compressed, warranting greater selectivity and a more cautious approach. --- ## **Our view on fixed income** ##### **Rates** > ##### **POSITIVE but don't go too long** We still like short-to-medium term maturities in our sovereign fixed income allocation. However, we hold a Neutral view on long-term government bonds as potential downside risks to growth now balance the uncertainties surrounding the inflation outlook. The impact of supportive fiscal policy, fueled by surging public debt, and of political interferences in the Fed’s monetary policy are major factors of uncertainties for US Treasury yields. In Europe, new government spending, particularly in defense, is exerting upward pressure on long-term rates.    ##### **Investment Grade** > ##### **NEUTRAL, harvest the carry** We find Investment Grade corporate bonds attractive in the current environment, given their yield level and our constructive economic scenario. However, tight credit spreads have reduced the margin for safety in credit, that can be deemed as expensive from a valuation standpoint. As a result, we hold a Neutral stance on Investment Grade credit from an asset allocation perspective. The credit market's overall health is supported by robust demand and strategic maturity management.  ##### **High Yield** > ##### **NEUTRAL, go short-term** We like High Yield bonds with short maturity for their attractive combination of yield and low sensitivity to interest rate movements. HY spreads have tightened, signaling economic stability and contained default risk in the short run. However, those tight spreads are not attractive for medium-to-long term maturities as they do not compensate adequately for a potential deterioration in the economic environment. As such, we hold a Neutral view for High Yield in an allocation, with a clear preference for short-duration investments. We continue to find value in subordinated debt. ##### **Emerging Markets** > ##### **NEUTRAL, be selective** We plead for a careful selection of issuers to benefit from attractive absolute yields. Substantial inflows into EM debt this year have been fueled by a weak dollar along with EM corporates’ solid credit metrics and support the asset class. However, risks persist, with rich valuations and unpredictable Trump’s trade policies. Idiosyncratic risks also remain, notably in Brazil and India. Given this backdrop, we stay selective, favoring short-duration opportunities while remaining Neutral on the broad EM debt asset class.  --- ## **The Chart of the week** **Dramatic one-day move on 2-year Treasury after the Job Report**  ![](https://blog.syzgroup.com/hs-fs/hubfs/image-png-Aug-05-2025-06-12-32-6025-AM.png?width=964&height=609&name=image-png-Aug-05-2025-06-12-32-6025-AM.png) *Source: Banque Syz, Factset* A 28-basis point (bp) drop in the U.S. 2-year Treasury yield in a single day is significant and by most standards. The 2-year Treasury yield typically moves by just a few bps per day, often in the range of 1-5 bps. A 28-bps drop is roughly 5-10 times the usual daily move, placing it in the top percentile of daily changes. Such large swings were last seen during extreme market stress: daily declines of 20–30 bps occurred at the height of the pandemic in March 2020. The SVB collapse in March 2023 saw the 2-year yield plunge by nearly 50 bps in one session — one of the largest ever. Similar or greater moves occurred during the Lehman Brothers crisis in 2008. #### Disclaimer This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. This document is intended for informational purposes only and should not be construed as an offer, solicitation or recommendation for the subscription, purchase, sale or safekeeping of any security or financial instrument or for the engagement in any other transaction, as the provision of any investment advice or service, or as a contractual document. Nothing in this document constitutes an investment, legal, tax or accounting advice or a representation that any investment or strategy is suitable or appropriate for an investor's particular and individual circumstances, nor does it constitute a personalized investment advice for any investor. This document reflects the information, opinions and comments of Bank Syz Ltd. as of the date of its publication, which are subject to change without notice. The opinions and comments of the authors in this document reflect their current views and may not coincide with those of other Syz Group entities or third parties, which may have reached different conclusions. The market valuations, terms and calculations contained herein are estimates only. The information provided comes from sources deemed reliable, but Bank Syz Ltd. does not guarantee its completeness, accuracy, reliability and actuality. Past performance gives no indication of nor guarantees current or future results. Bank Syz Ltd. accepts no liability for any loss arising from the use of this document. 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