Tariff-related concerns continue to cloud the outlook for North American credit conditions, with the reconciliation bill working its way through Congress, adding to uncertainty. At the same time, U.S. involvement in the Israel-Iran conflict—and the fragility of a ceasefire—heightens the risk that tensions will escalate and disrupt the capital and global energy markets, and economic activity. S&P Global Ratings said in a report titled "Credit Conditions North America Q3 2025: Still More Clouds Than Clarity."

Heightened geopolitical strife could disrupt global energy markets and economic activity. The threat of terrorism could curb travel and tourism, and the possibility of cyberattacks on critical U.S. infrastructure adds downside risk for an economy that is already slipping below trend growth. We forecast real GDP growth to slow to 1.1% by year end.

“Against this backdrop, market volatility could return and push investors into a ‘risk-off’ stance that would raise borrowing costs and disrupt the typical flow of capital,” said David Tesher, S&P Global Ratings’ head of North America Credit Research. “Borrowers at the lower end of the credit spectrum have the most to lose in the event of an economic slowdown.”

Tariffs remain a top concern for many corporate borrowers we rate. Sectors exposed to imports and cross-border supply chains could face materially higher input prices. This comes as companies struggle with a finite ability to pass along higher costs to customers and consumers, given limited supply chain substitutions.

At the same time, uncertainty about further levies persists, and countermeasures imposed by U.S. trading partners will compound the stress by hurting American companies relying on key components and foreign markets. This could cause U.S. corporates to curb spending, along with more severe margin and earnings pressures, weighing on credit quality. Canadian companies, too, could suffer from operating inefficiencies and reduced competitiveness in the U.S. market, while grappling with the needs to reassess their supply chains and seek alternative markets.

The prospect of tariff-fueled inflation—especially if combined with weakness in the labor market—is also clouding the horizon for Federal Reserve monetary policy. We now forecast 50 basis points of easing late in the year, as demand weakness outweighs inflationary pressures.

For now, spreads on corporate debt remain narrow. As of June 20, the secondary-market spread on U.S. speculative-grade debt was at 253 basis points (bps)—well off the high of 381 bps it reached on April 9, a week after the White House announced tariffs on all countries. That’s also significantly below our preliminary estimate of the May daily average spread of 471 bps, indicating spreads could widen materially—and suddenly—if investor risk-aversion returns.