Sweta Singh, founder and portfolio manager at City Different Investments, speaks with Trader TV about the market’s reaction to the US Supreme Court’s decision to strike down President Trump’s IEEPA tariffs. As investors adopt a wait-and-see approach amid ongoing legal uncertainty, Singh outlines the potential short- and long-term implications of the ruling and what could come next for bond markets.
She also discusses mounting risks in the private credit market, addressing concerns over rising default rates and the potential for stress to spill over into public high-yield and even investment-grade debt markets.
Interview
Josephine Gallagher – So we’ve had a very busy start to 2026, to say the least, on February 20, we saw that the US Supreme Court struck down President Trump’s tariffs. How have markets reacted to the news? And also, what are the short and long-term implications?
Sweta Singh – So the markets didn’t do much in the short. So, 10 year Treasury, if you think of that as a proxy for market response, stayed under 410. And two-year Treasury hovered around that 345, 348, watermark. To give you an idea, this stayed the same when President Trump addressed the nation in his State of the Union. So the market really responded in a very orderly fashion. What is almost counterintuitive is that you would expect policy of this magnitude being struck down to cause a yield curve steepener. But the reverse happened. We entered the month of February, where the yield curve, 210 spread was around 70 basis points, and the month ended with a much flatter yield curve at around 60-61 basis points. This was a flattener on the back of the global flattener that we’re seeing in the yield curve, based on what is happening with the JGB (Japanese Government Bonds). The second part of your question in terms of longer and shorter implications for the market, and I’d like to jump on the coattails of Justice Kavanagh when he said, frankly, this is a mess. First and foremost, you have to address the $170 billion elephant in the room, or the tariff being repaid to corporations. Now this really impacts consumer staples the most, so companies like Walmart, Costco, which are already, frankly knee deep in litigation. So if they do get the money back, I, for one, really see them using it to shore up their balance sheet, perhaps even pay down debt, but really bolster the balance sheet component as there’s more volatility to just strengthen against that for a rainy day fund. My PSA to the consumer is, do not hold your breath at the registers. I don’t see the tariffs being trickled back to consumer at least not just yet.
Josephine Gallagher – So could this shake up confidence in us bond markets do you think, and are you seeing any substantial outflows out of US assets?
Sweta Singh – We haven’t so far, and it is because countries and investors alike are in a massive wait-and-see approach, because the legal ground underneath has completely shifted. Even though the Supreme Court has struck down IEEPA (International Emergency Economic Powers Act) the sectoral tariffs still stand, and those were the ones that caused a massive amount of pain. What we’ve seen countries like Japan and the European Union do is they’ve paused the deal for right now. They’re reassessing the compromises that they have made so far. What the investors really are zeroing in on is the trade deficit and that gap. For fiscal 2025 this came out to be around a $1.8 trillion budget gap, or 6% of GDP (Gross Domestic Product), and now staring into the next five years to come, this number has gone up, probably around eight, nine, 10% of GDP. That administration did put a temporary band aid on this problem. Came out with Section 122 and has an average effective tariff rate of 10%, maybe it could go up to 15% for right now. However, the Section 122 tariff has a strict expiration date for July or 150 days moving forward. So the investors are going to wait and watch what the administration does once this 150 days expire, how would the $170 billion in tariff refund be paid? The bond market is betting it will be paid in terms of treasury bills. And we should see a steepening of the US Treasury yield curve, as we see saw coming out of the Liberation Day. So we are biased towards a steeper yield curve that should appear in the market sometime soon, because we haven’t seen it so far, and the investors are really grappling with this increasing GDP budget deficit that should for the market mean a steeper yield curve.
Josephine Gallagher – Cracks in the private credit market has also gathered a lot of attention recently, and a big sample of that being the buy-side Blue Owl. Could you tell me, do you see the cracks and the problems in the private market bleeding into the public bond market?
Sweta Singh – You’re absolutely right. Jo. The true high-yield risk isn’t even in the public bond market anymore, because it’s being priced in the private credit market. It has completely changed the risk-reward profile for the public high-yield market, where we’re seeing spreads anchored around that 260 basis points, which is at all time tights. Because what is happening is the most levered and the riskiest of credits are being priced in the private credit markets. And one such example is that of the software companies that have taken out loans in the private credit market and have roughly originated about 40% of the loans here. UBS recently came out with a study which said they are attributing the default risk for private credit market to be around that 15% mark, and it disproportionately impacts the software sector, as we are seeing the AI themes play out and pose a real challenge to the software, the legacy SaaS companies. This could be the canary in the coal mine or a shakedown in the private credit market that could push into the public high yield market, because the private market is a substantial market right now, at $1.8 trillion market. So that would impact the public high-yield market and even perhaps touch the investment-grade market.
Josephine Gallagher – And finally, what else is top of mind for your investment desk this week? What should investors be planning ahead for?
Sweta Singh – I’m amazed that we had this whole conversation and didn’t even once talk about the Federal Reserve, which is so unusual for any fixed income conversation. The Federal Reserve really looks at two mandates, right, inflation and the second one being employment. I think your listeners would agree right now, employment has eclipsed that inflation piece of the Fed mandate. When I look at the macroeconomic picture, the US does look like it’s in that goldilocks phase, in spite of the policy and the SCOTUS (Supreme Court of the United States) ruling. Volatility, GDP is fine. Inflation is trending in the right direction. Yes, employment is in the headline with that low hiring, low firing phase. However, the public markets and the bond markets in particular, are doing just fine. They’re firing on all cylinders. We see issuance, both in the municipal market and in the IG market. The municipal market for the month of February ended up somewhere around $39-40 billion in terms of February issuance. This is a really high watermark. To give you an idea, the last time we saw such robust issuance was in 2007 at 37 billion for the muni market. Now coming to the IG credit market, where the month ended for February somewhere around 190 billion, approximately. And what is interesting in the IG market is that we are seeing longer tenor debt come out. That’s an interesting change. However, the investor appetite is still voracious, high. Issuance is good. So frankly, liquidity is really good in the public bond market..
Josephine Gallagher – Thanks for that, for that, for insight, and of course, you for watching this has been Trader TV This Week.
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