AT1s and HY most at risk in that escalating tariff environment

The underperformance of High Beta credits has sharply intensified last week, with US$ HY spreads widening by 27bp vs swap, €HY by 17bp and €AT1s by 16bp. The risk of escalating trade war is the main explanation behind that risk off move and we doubt it could change soon. Reciprocal tariffs are now going to start with all countries and will be unveiled on April 2, after the Auto tariffs last week (unlikely to change soon in our opinion). Corporate Hybrids have been relatively more resilient (+9bp) and particularly Sub Insurance debt (+4bp) among the High Betas. We believe those will continue to behave better than AT1 and HY given their relative value (fair-value s still far wider than current spread levels for HY particularly). S ector-wise, Real Estate outperformed with a spread tightening of 3bp compared with flat spread overall for corporate non-financial senior. Food&Beverage and Healthcare also behave better than the overall market, while Autos were obviously the main underperformer of the week (+3bp) after the US administration overall 25% tariff announcement (with some exceptions however) on the sector. The spread differential between the iBoxx Auto and non-financial indices has admittedly increased by around 6.5bp since early Feb (see chart on next page), but it is still below its 2018-2024 average by 8bp, which is not enough in the current tariff environment .