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Credit markets may look healthy on the surface, but the bounce-back across leveraged finance following last week’s US–China tariff shock belies an uncomfortable truth: correlation is running hot.

Across both CLOs and synthetic credit, trading sources say idiosyncratic risk is not being reflected in market moves — with Europe in particular reflecting systemic drivers.

“It maybe feels counterintuitive given the idiosyncratic risk headlines we’re seeing, but correlation is very high in Europe,” said one buyside source. “It’s technically driven, because value has been squeezed out of equity tranches by the stickiness of senior.”