Comment by NoboruWataya

It's difficult to say with any certainty what it means for the general economy, but your understanding of what this is saying about the junk bonds themselves is basically correct.

Whether it leads to a lot of defaults depends on a lot of factors. A sell-off in bonds can really screw a company if it happens to have immediate financing needs at the time, but otherwise it doesn't really impact the company directly. Junk bonds are, as the name suggests, known to be risky assets, so they are generally the first to be sold when things get a bit choppy and investors decide to sit the market out for a bit to see how events unfold.

This seems like it is pretty clearly a response to the recent tariff escalation so, as with all the other tariff announcements, it will depend on whether the recent announcement is a change in policy or another negotiating tactic.

You also see a lot of headlines like "worst losses in six months!" "biggest sell-off since September!" but these are fairly short timeframes and a lot of this is just trying to make some news out of the usual market noise.