Credit markets brush off tariff worries

Even US President Donald Trump's tariff rhetoric kets, a sign to some money managers and strategists that the market is too complacent.

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Prices on credit default swaps (CDS) barely moved on Monday amid the prospect of levies being introduced on Mexican and Canadian goods, even as trading volume in the derivatives more than doubled from the previous week's daily average. By Tuesday, activity had returned to more typical levels.

CDS didn't sell off because "credit remains a tight asset class with the most stretched valuations across the board," said Gabriele Foa, an Algebris Investments portfolio manager whose Global Opportunities Fund has "extremely cautious" positioning at present.

"In high yield, CDS has only been at current levels three times in the last 10 years and that's been followed by a sharp widening in the six to nine months after that." Trump is trying to revitalize US industry, cut the government deficit and gain bargaining power with foreign governments through the use of tariffs, with the latest due to be announced this coming week.