The cost of insuring against defaults for Europe’s most at-risk companies has surged to its highest level in a year and a half, driven by escalating investor concerns over the implications of U.S. tariffs introduced by the former President Donald Trump. This situation has sent ripples across the corporate landscape, raising alarms among investors and analysts alike.The iTraxx Crossover index, an important financial benchmark that measures the cost of credit-default swaps for junk-rated companies, recorded a significant increase of 93 basis points, reaching 421 basis points since April 2. This alarming statistic translates to a staggering €421,000 per year required to insure €10 million in corporate debt over a five-year period. Such rising costs are indicative of deepening worries regarding the financial stability of these vulnerable enterprises.This widely referenced index encompasses credit-default swaps from 75 companies in Europe, including notable firms like Jaguar Land Rover and the French telecommunications group Iliad. The recent spike in the index has highlighted a growing unease about the overall health of these companies as market volatility grips investors.Despite the troubling rise in the index, fund managers have noted that the upward movement has not yet led to a chaotic sell-off of junk bonds. One high-yield bond investor commented that while the weaker structures within the market are indeed facing challenges, the selling activity has not been characterized as panicked; rather, it represents a more measured and steady repricing of assets.However, the pressures affecting lower-rated firms are not confined to them alone. Higher-rated companies are also feeling the strain, as evidenced by the iTraxx Europe index—which tracks 125 investment-grade firms—also rising to its highest level in 18 months. This index has seen an uptick of 20 basis points, bringing it to 83 basis points since the beginning of April.The current market dynamics have led to a noticeable slowdown in the issuance of new debt by riskier European firms, as many investors adopt a wait-and-see approach amid the ongoing volatility. The market for new debt has effectively “ground to a halt,” as described by one high-yield bond investor. Another credit investor succinctly noted that “primary bond land is closed” for the time being, indicating a significant pause in capital activity.Amid this backdrop of uncertainty, a handful of credit investors pointed to the recent €2.2 billion loan deal associated with Bain Capital’s acquisition of the facility management company Apleona as the sole active leveraged finance deal currently unfolding in Europe. In an effort to entice potential investors, the consortium of banks managing the debt deal—including Citigroup, Deutsche Bank, and UBS—had to offer higher interest rates due to the prevailing market tumult.This loan deal was initially marketed on March 31, just days before President Trump's announcement of steep tariffs on imports, which further unsettled global markets. Bain Capital’s agreement to acquire Apleona from competitor PAI was first disclosed in February, but the subsequent geopolitical developments have complicated matters further.Fitch Ratings weighed in on the situation, warning that the implementation of blanket U.S. tariffs on imports would exacerbate pressures on corporate issuers, particularly those lacking leverage headroom. The agency emphasized that sectors such as automotive, technology hardware, and chemicals would face especially acute challenges in light of these changes.The automotive sector, in particular, has seen a marked increase in the cost of insuring debts against defaults. For instance, the cost of insuring Volkswagen’s debt against default over the next five years rose by 30 basis points to 154 basis points earlier this week, marking the highest level seen since the onset of the COVID-19 pandemic.Moreover, European companies that may be vulnerable to a potential influx of inexpensive Chinese goods have also been adversely affected, as investors brace for possible retaliatory measures from China, the world’s second-largest economy. The spreads on bonds for firms like Amara NZero, which supplies renewable products used in solar, wind, and hydro power, and Kem One, a manufacturer of PVC, have continued to climb as the situation unfolds.