"Cracks that appeared in the credit market last week culminated into a fracture this week," Bank of America Corp. strategist Neha Khoda wrote in a note. Tariffs are expected to dent the growth of the world economy. "The angst levels have just gone up tremendously," Victor Khosla, founder of opportunistic credit investor Strategic Value Partners, said in an interview with Bloomberg TV. Some hedge funds have already stumbled as volatility rises and investors are piling into haven assets like gold. Markit CDX North American High Yield Index has dropped to the lowest since August.

Levels as of March 13 were 335 basis points. "Recently, we moved from a market that used to buy rumors and sell facts," said Gauthier Reymondier. Private capital firms are adding more expensive debt to their portfolio companies. The whipsawing of US economic policy is making it harder for private capital firms to sell off their holdings.

"Too much money has flown into the private credit asset class," said Claire Madden, a managing partner at US leveraged loans saw their first outflows this year in the week through March 12, according to LSEG Lipper. Money managers are now becoming more selective, pushing back on aggressive pricing and credits with lower ratings. debt markets are "going passive," said Ted Goldthorpe, head of credit at BC Partners. "That's not good" because when those funds become too big the market "becomes very flow oriented versus fundamental oriented"