A sprint around the desk in Pasadena at 8:30 a.m.

I took a quick lap around the Desk at 8:30 a.m. Pacific Time to ask a number of colleagues the following question: What is top of mind for you given what we learned since President Trump’s Rose Garden announcement on reciprocal tariffs on April 2?

Fred Marki, Generalist Portfolio Manager (PM): “The increase to inflation expectations in market prices has been limited to the next 12 months, while inflation expectations for 2026 and beyond have been marked down in line with our prior view of the impact of tariffs on future inflation. I believe growth will be lower. The announcement throws sand in the gears of the global economy. Sixty years of globalization, which generated tremendous per-capita growth for many around the globe, will be threatened by the announced tariffs. What was announced seems more likely to be implemented and longer lasting than previously expected. I believe we must take this announcement more seriously than prior announcements and further incorporate the potential repercussions into our forecasts.”

Mark Lindbloom, Deputy CIO & Head of Broad Market Portfolios: “I’m somewhat torn. I’m debating whether we are heading into recession or simply dealing with greater expectations of a recession. If the RoW (rest of the world) leans further into a rotation away from US assets, pricing adjustments to the US dollar could go much further. Ultimately, given the shifting environment, is our current duration stance appropriate or should we be longer?”

Walter Kilcullen, Head of US High Yield: “Not much is trading, unfortunately, in high-yield. Select higher-beta paper directly impacted by tariffs is down anywhere from 2 to 8 points in capitulation mode—that’s a rather small segment of the overall BIG (below-investment-grade) Universe. Meanwhile, higher-quality paper has been generally resilient today with rates rallying. That being said, all have widened materially in spread since mid-February. Optically, this recent valuation repricing—with the high-yield index likely another 25 to 30 basis points (bps) wider on the day—feels a bit disconcerting, but we have not seen a material flush of on-the-run paper signaling meaningful retail outflows. We have real interest in higher-quality high-yield toward indicative bid sides on this widening, as “capital committers” with the Street are reticent to take down risk on the wire.

Rajiv Sachdeva, Head of Quantitative Analysis: “From my perspective, President Trump is being rational. He wants to bring US rates lower so that the US can refinance its deficit at lower rate levels. He is willing to do this at the expense of lower equity prices.”

Obie Alvarez, Investment-Grade Corporate Credit Trader: “Yesterday a high BBB rated new issue, which is less susceptible to tariffs and long a backlog of orders, came in at +120 bps and tightened to +112 bps on the break. Today it has repriced to +121/+122 bps and we are better buyers. Another high BBB rated piece of paper with upward rating trajectory, not directly susceptible to additional tariffs, recently issued 30-year debt at +145 bps and can be purchased today at +157 bps. Another issuer’s debt that we tendered in 4Q24 at a spread of 60 bps can be sourced today at a spread of 90 bps. Opportunities to buy high-quality paper that we like at wider levels have begun to surface.”

Sebastian Angerer, Credit Analyst visiting from our London office: “The developments seem to be negative. Some European press considers the announcement to be a rather hostile shift. I believe markets will likely reprice wider on the news. Conviction remains low with uncertainty elevated.”

Greg Handler, Head of Structured Products: “Far from an ideal development in my opinion, the announcement was worse than what was broadly expected and the offramp to de-escalation seems far away. Greater economic uncertainty coupled with spreads that had recently moved to their tightest levels in years could be a bad combination. We had gone down in risk and closer to home earlier in the year. On the margin we are looking for buying opportunities on dips in areas with strong or unaffected fundamentals, but in general I would describe ourselves as being patient.”

Ion Dan, Agency MBS PM: “We adjusted positioning recently with the objective of moving away from prepayment risk. We were overweight higher coupons and have trimmed those and moved down in coupon. In summary, we have de-risked and added net duration.”

Simon Miller, Commercial Mortgage Credit PM: “The announcement escalates risk to discretionary spending. The hospitality and retail sectors had relatively high valuations when, in the context of recent developments, warehouse and logistics were high as well, but to a lesser extent. The risk is that this pricing comes out of these assets as underlying demand comes off. What is uncertain is how long the market remains risk-off and how long uncertainty will persist. Currently markets are functioning, albeit with wider bid/ask levels. AAAs are 3 to 5 bps wider in spread, but with deep credit roughly 40 bps wider on the day depending on the situation. Nonetheless, it is worth noting that short bonds (12 to 24 months) can actually look better, relatively speaking, as lower base rates will increase the potential for successful refinancings at maturity.”

Prashant Chandran, Interim Head of US Emerging Markets: “We expected more nuanced tariffs but in fact we were given blunt tariffs (i.e., imports-exports/imports). I am concerned this could lead the rest of the world to think that the Trump administration is not as organized as anticipated and therefore implies a rotation away from anything US-related. Emerging markets (EM) risk has held in relatively well, all things considered. EM FX has held in while EM corporate debt and hard currency sovereign debt have widened, similar to that seen in investment-grade and high-yield corporate debt. We are taking profits on select USD-denominated short positions in the EM book.”

Chris Jacobs, Restructuring PM: “From my perspective of trying to determine how to restructure a deal, much has changed regarding how a balance sheet should look. Projections have changed and multiples have changed. This will result in a little bit of a pause, which is frustrating, until we determine how cash flows will be impacted.”

Jimmy Huynh, High Yield Trader: “My quick take is that as Europe heads home, we are experiencing a small technical rebound in this repricing as those going home are short covering.”

Rafael Zielonka, Generalist PM: What was top of mind for me this morning? The deleveraging process requires time. Coming into the year, many market participants held trades that were highly correlated. After Trump’s inauguration, the crowding into correlated trades was reduced, and after yesterday’s Rose Garden announcement, the position adjustment has gone further and involved additional market participants. Questions that come to mind pertain to inflation implications, Treasury and equity correlations over coming quarters, and the extent of broader market rotation flows. We have trimmed a portion of the long AUDUSD position today.

In conclusion, it’s clear that market participants feel a bit uneasy about the potential impact of the tariffs on the global economy and markets. Inflation might tick up in the short term, but our long-term view hasn’t changed much. Market price action implies uncertainty; therefore, we proceed with caution, adjusting our positions to manage risk and looking for sensible opportunities in higher-quality assets. This move from Trump feels like a big deal and something we need to take seriously, as it could possibly lead to a significant shift of our investment strategies and market outlook. We’ll keep a close watch on the situation to see how it plays out and adjust our approach as needed.