(Bloomberg) -- Corporate borrowers are easing back into the high-grade debt market after a global selloff — sparked by concerns the labor market is cooling too fast and the economy is heading for a recession — sidelined potential issuers.
Toyota Motor Credit Corp. is among at least seven companies tapping the US investment-grade market on Tuesday, after the historic selloff shut down sales on Monday, causing at least 10 companies to back down. Issuers selling bonds Tuesday could help return price stability in the market, paving the way for other borrowers to use as a base to sell bonds later, Bloomberg reported. Several deals in the pipeline are said to have been moved to Wednesday and Thursday, with some opting to push out until next week.
A series of disappointing economic data has investors fretting that the Federal Reserve may have waited too long to dial back on interest rates. That’s igniting fear that the job market is cooling too quickly after July payroll data came in lower than analyst expected and the employment rate ticked up, triggering a widely-watched recession indicator.
Stability in financial markets will likely pave way for a “fair amount of deals,” said Matt Brill, head of North America investment-grade credit at Invesco. But issuers reopening the high-grade market will probably have to sweeten offerings with greater new issue concessions — the premium that companies pay to entice investors to buy their debt.
“I would expect fairly significant concessions would be required and the companies that come first will be the highest quality,” said Brill.
The recession jitters spiked a key gauge of perceived credit risk in the US corporate markets to the most since the Monday after Silicon Valley Bank collapsed in 2023. Meanwhile, average high-grade spreads widened 6 basis points to close at 111 basis points on Monday, the highest since November 2023.
Toyota Motor is selling bonds in as many as three parts for general corporate use, according to a person with knowledge of the matter. JPMorgan Chase & Co., Mizuho Financial Group Inc., SMBC Nikko Securities America Inc. and U.S. Bancorp are managing the Toyota bond offering, the person said. Other issuers include Connecticut Light and Power Co. and Virginia Electric and Power Co.
‘Good Opportunities’
Before the selloff, which started late last week, Wall Street syndicate desks were calling for about $40 billion of supply for this week, but that is now highly unlikely as some companies may decide to push their borrowing plans to next week.
“You actually want to see a big week of issuance, just because that means that the markets have returned to normal,” added Brill.
Allspring Global Investments is also keeping a “really close eye” on the new issue concessions, according to Noah Wise, senior portfolio manager for the Plus Fixed Income team at the firm, which oversees $505 billion as of end of June.
“The new issue market can create good opportunities in these types of periods,” said Wise.
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