From the Desk

Linda Kong Ting
Senior Director and Credit Analyst, Asset Management

LinkedIn 

The about-face on tariffs for both Canada and Mexico happened so rapidly that you could be excused, if looking only at closing levels, for missing their impact on currencies, equities and credit. However, the moves in the ranges of 2% intraday for Canadian dollar and Mexican peso exchange rates and 2%–3% for major U.S. equity indices demonstrated that we are indeed in a vulnerable place from a valuation and positioning perspective. Credit, for its part, remains comparatively stable within this backdrop, as rates have taken the brunt of volatility in the fixed income space.

However, from a sector perspective, we do think there are opportunities within credit to anticipate and de-risk positions that could be hurt by ongoing volatility as Donald Trump’s administration continues its cycles of policy announcements, reframings and clarifications. Although we still face a good deal of policy uncertainty as to the direct impacts on areas like automotive manufacturing and retail, it is highly likely that auto prices would increase anyway as companies scramble to reconsider supply chains at their own cost. We therefore anticipate stronger collateral values for auto-related asset-backed securities (ABS) that will result in improved recoveries. 

Similarly, we believe there is a case for even higher home prices despite continued high rates, as replacement costs will go up not only on tariff uncertainty but higher labor costs. This also suggests that asset recoveries in home equity-related ABS could be better than expected. On the other hand, we are becoming marginally more cautious on property-and-casualty lenders exposed to home and auto insurance, as they are not only exposed to the risk of a return to the cost inflation that caused COVID-era losses, but also to somewhat lower investment rates in the front end of the curve.

Source: Bloomberg, 2025.

Dec Mullarkey
Managing Director, Investment Strategy and Asset Allocation

LinkedIn

Understandably, immediate tariff tension is clogging headlines as the U.S. gave a 30-day reprieve to Canada and Mexico and added 10% on China. But developments leading up to an April 1 report deadline are also worth paying attention to. The heads of three U.S. government agencies have been tasked with coming up with recommendations to overhaul the trading system and establish an “external revenue service to collect all tariffs, duties and revenues.” That mandate seems to be pushing closer to some version of a universal tariff, which would be a major shift in global trade.   

Away from trade, there was an interesting market development this week. As the new U.S. Treasury secretary, Scott Bessent, caught up with the press he made clear that he and the President “are focused on the 10-year Treasury” and are less concerned about the U.S. Federal Reserve’s moves.

The 10-year Treasury bond is undoubtedly one of the largest and most liquid securities in the world. It is driven by economics and global market dynamics and is agnostic to political pressures. It influences the pricing of a large chunk of household and corporate debt. And it also pays a lot of attention to responsible inflation and deficit dynamics. 

Bessent seems alert to what he is dealing with. He reiterated the list of what the administration believes it needs to do: cut spending, cut taxes, deregulate the economy and lower energy costs. While the list is clear, execution is of course difficult. 

Meanwhile, the 10-year Treasury is a tough scorekeeper and will quickly provide feedback. Of late, its rate has dropped as it likes what it sees on the inflation front and the cooling in Canadian and Mexican tariff tensions. 

Sources: Bloomberg, Financial Times, 2025.

The information may include statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. All opinions and commentary are subject to change without notice. SLC Management is not affiliated with, nor endorsing, any third parties mentioned within this article.

Market insights are based on individual portfolio manager opinions and market observations. These are observations only and are not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information posted here. 

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