Bond Issuance Quickly Recovers After Turbulent Week in Financial Markets
During challenging times, Wall Street often looks to the bond market for signals regarding the U.S. economy. So far, the atmosphere remains calm, as noted by analysts in recent reports.
The recovery in equities has provided a boost to the corporate debt markets, increasing bond prices and loans, and paving the way for investment banks to engage in new debt sales. Fund managers have indicated they are closely monitoring these transactions to assess whether the recovery will sustain or yield to further disruptions.
Companies with varying credit ratings are once again issuing debt after a few days of relative calm in the debt markets. Credit spreads—the premium that investors demand to hold corporate debt instead of government bonds—tightened on Tuesday after reaching nearly record low levels in recent days. Historically, narrowing spreads reflect decreasing investor concerns about tightening financial conditions and a slowing economy.
The broad-based recovery followed a period of economic anxiety and a reversal of popular investment bets that had led U.S. stocks to their largest decline since 2022, and Japanese markets to their worst day since the market crash of 1987. On Monday, both investment-grade and non-investment-grade bonds, as well as leveraged loans, saw a decrease in value.
Despite the recovery, bankers are advising clients to exercise caution. Many expected investment-grade companies to issue bonds worth between $35 billion and $40 billion this week, but they revised these expectations downward following the stock declines on Monday.
“Market volatility has impacted supply and credit spreads, but the market is not near a freezing point,” commented Chris Forshner, head of investment-grade bonds at BNP Paribas. On Tuesday, only seven investment-grade companies issued bonds, whereas he had anticipated around 15 deals for the day.
Maureen O’Connor, global head of high-grade debt at Wells Fargo, stated that the bank has advised companies to remain flexible and wait for the right moment to issue. The bank had instructed issuers to pull back on Monday, given the risky market environment.
“Currently, the calendar is very volatile,” O’Connor believes. Borrowers are stepping away from the market with the sentiment that “it’s not frozen, we just need to choose the right time window.”
The volatility in the credit market was notable on Monday. Until recently, companies with various credit ratings had a strong year, issuing bonds while credit spreads were nearing pre-pandemic lows, according to FactSet data. The spread on the Bloomberg index for U.S. investment-grade bonds jumped by 12% in recent days to 0.55 percentage points, its highest level since December.
This shift attracted some buyers. “Yesterday, we took on a bit of risk,” shared Eric Stein, chief investment officer for fixed income at Voya Investment Management. “Prior to that, the spreads were unattractive.”
Investors view corporate debt sales as crucial for the smooth functioning of the economy, and issues in the credit markets are often seen as signals of impending slowing growth. Recent debt sales have underscored this dynamic.
Market Reactions to Recent Bond Offerings
Recent activities by both large and small companies have reassured some investors that the fluctuations in stock prices merely indicate a typical market downturn rather than the onset of a prolonged decline.
Toyota Motor is exploring the bond market with an investment-grade bond offering consisting of three parts, set to take place on Tuesday. In the more speculative corners of the credit market, several companies have executed new debt transactions, while others have opted to delay their plans.
This week, two natural gas power plant operators, Lightning Power and South Field, completed loan transactions aimed at refinancing existing debt and distributing dividends to shareholders, according to PitchBook LCD. Infrastructure construction provider Arcosa has also initiated a deal to finance an acquisition.
Meanwhile, Focus Financial, a private wealth management partnership, postponed the sale of approximately $5 billion in loans and bonds intended for debt refinancing and dividend distributions to its owners. Additionally, SBA Communications, a real estate investment trust that owns cell tower assets, postponed its plans on Monday to secure a $2.29 billion loan meant to pay off higher-interest debt.
