“If the economy was to slow down due to ongoing commercial tensions, we could expect spreads to widen further and conversations about more defaults start emerging again,” said Raphael Thuin, head of capital market strategies at Tikehau Capital.

Most financial markets underestimated the magnitude of the tariffs the Trump administration unveiled on Wednesday, JPMorgan Chase & Co. credit strategists Eric Beinstein and Nathaniel Rosenbaum wrote in a note Friday. The levies, if implemented, may push the U.S. and global economy into recession this year, they wrote. They widened their spread projection for the JPMorgan US Liquid Index by 35 bps, to 125 bps. “Everything is on the table now, including a recession,” wrote the analysts.

Junk bonds in Europe dropped today, with auto suppliers leading the move downward. Nanterre-based Forvia SE’s euro bond due June 2031 is poised for its biggest fall on record, according to Bloomberg-compiled prices. Schaeffler, ZF Friedrichshafen AG, and Standard Profil Automotive GmbH also saw their bond prices drop sharply on the day.

The declines within the European junk-rated index were led not only by the companies most affected by tariffs, but also by the lower-quality names that were sparking investor concerns prior to the tariff announcement. Among the biggest losers were EQT’s French laboratories business Cerba, as well as Emeria, a real estate company. Both have already been under the spotlight because of their heavy debt piles.

In the United States, bonds from companies in the energy sector fell the most, after oil prices hit a four-year low. It was the worst-performing part of both high-yield and investment-grade, data compiled by Bloomberg show. Refining company PBF Energy’s 7.875 percent notes due 2030 slumped as much as 8.375 cents, to 75.5 cents on the dollar, the lowest on record, according to Trace pricing data. U.S. junk bonds of liquefied natural gas company New Fortress Energy extended losses Friday. Its 6.5 percent notes due 2026 fell as much as 5.5 cents, to 72 cents on the dollar, also the lowest on record, Trace data shows.

Other sectors are getting hammered too, including retailers such as Saks Global Enterprises. Its 11 percent bonds due 2029 were among the most heavily traded, dropping as much as 5 cents on the dollar, to a record low of 71.5 cents, according to Trace.

Recently, junk credit markets had been relatively insulated from the pain being felt in stocks as concerns rose over the impact of trade levies on the global economy. Investors argued that the hefty yields on offer in a high-rate environment offered protection from the worst of the volatility. However, the tariffs sent shock waves through global markets yesterday, with the S&P 500 suffering its worst trading session in five years. Junk bond spreads spiking globally, but most notably in the United States.

The risk of a trade war is also rising as countries decide how to respond to the levies. China plans to impose a 34 percent tariff on all U.S. goods starting April 10, according to local reports. And the risk of a recession in the United States have risen to at least 50 percent, Apollo Global Management Inc. President Jim Zelter said yesterday.

“Everyone is stunned by what is happening,” Benjamin Sabahi, head of credit research at Spread Research. “The consequence, generally speaking, for the credit market is that inflation is likely to be back and revenue expectations adjusted downward at issuer level.”

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