The past week has been a wake-up call for credit markets. Investors are feeling the sting of tariffs and uncertainty, and the pain is showing up in spreads. In just nine trading days, the spread between investment-grade (IG) and high-yield (HY) corporate bonds has jumped 120 basis points — a 35% leap. That puts us back at levels last seen in mid-2023. It’s a sharp move, no doubt, but in the bigger picture, we’re not in uncharted territory. This spread is roughly where it stood before the pandemic, when markets were pricing in a garden-variety cyclical slowdown.

So what happens if we’re heading for something worse?

That’s when things get real. Back in late 2015 through early 2016 — during the Fed’s ill-fated first attempt at hiking rates post-financial crisis — the IG/HY spread ballooned from 420 to 650 basis points. Fast-forward to today, and we’re sitting at 335 basis points. Not exactly crisis mode. In fact, zoom in on corporate bond spreads and you’d almost miss the stress. Take the 10-year Treasury to BBB spread — barely budged, despite all the noise. It was actually 50 basis points wider earlier this year.

But don’t let the calm on the surface fool you. Cracks are forming, and one of the more vulnerable corners is private equity. Last week, the S&P-listed private equity index dropped a staggering 14% between Thursday and Friday. That kind of move signals more than just jittery investors — it points to structural weakness. Leverage, liquidity, and timing are all under pressure, and if credit continues to tighten, the stress on these firms could accelerate fast.

Bottom line: the credit market is flashing warning signs. The real pain hasn’t hit yet — but we’re inching closer. And if things turn from cyclical slowdown to systemic concern, those spreads have a lot more room to run.