What market upheaval? Companies are selling debt just fine

The rebound in stocks boosted corporate debt markets Tuesday, lifting prices for bonds and loans and opening the way for investment banks to launch some new debt sales. Fund managers said they are watching the performance of those deals to gauge whether the recovery will continue or give way to further turmoil.

Companies of varying credit ratings are issuing debt again after a few days of relative quiet in the debt markets. Credit spreads—the premium investors demand to hold corporate debt instead of Treasurys—tightened Tuesday after widening off near-record lows in recent days. Historically, tightening spreads reflect diminishing investor concerns about tightening financial conditions and a slowing economy.

The broad-based recovery came after economic angst and the unraveling of crowded trades drove U.S. stocks to their biggest drop since 2022 and Japanese shares to their worst day since the 1987 market crash. Investment grade bonds, junk-rated debt and leveraged loans all fell on Monday.

Despite the recovery, bankers are advising clients to stay cautious. Many of them were expecting companies with investment-grade ratings to issue somewhere between $35 billion and $40 billion worth of bonds this week, but pulled back their expectations after the stock drop on Monday.

“The market volatility has had an impact on supply and it’s had an impact on credit spreads, but the market is nowhere near a point of being shut," said Chris Forshner, head of investment grade finance for BNP Paribas. Seven investment grade-rated firms issued bonds on Tuesday, while he had expected about as many as 15 deals for the day.

Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo, said the bank advised companies to be flexible and wait for the right window for issuance. The bank had told issuers to stand down on Monday given the risk-off market backdrop.

“The calendar is completely fluid right now," said O’Connor. “Borrowers are walking away from this market feeling like ‘OK, it’s not closed, it’s just about picking the right window.’"

Monday’s credit-market volatility was notable. Until recently, companies with a range of credit ratings have had a strong year issuing bonds, with credit spreads nearing prepandemic lows, according to FactSet data. The spread on a Bloomberg index of U.S. investment-grade bonds jumped 12% in recent days to 0.55 percentage point, its highest level since December.

That drew some buyers from the sidelines.

“We bought a little bit of risk yesterday," said Eric Stein, chief investment officer for fixed income at Voya Investment Management. “Before this, spreads were unattractive."

Investors view corporate debt sales as key to the smooth functioning of the economy, and trouble in credit markets is often taken to signal slowing growth ahead. The recent debt sales from companies large and small helped reassure some investors that the stock turmoil marked a normal market downturn, and likely not the start of an extended slump.

Toyota Motor tested the waters of the investment-grade bond market with a three-part bond offering Tuesday. In riskier corners of the credit market, some companies pushed forward new debt deals, while others delayed.

A pair of natural-gas power-plant operators, Lightning Power and South Field, launched loan deals this week to refinance existing debt and pay shareholder dividends, according to PitchBook LCD. Infrastructure construction supplier Arcosa also marketed a deal to pay for an acquisition.

Focus Financial, a wealth management partnership, postponed this week the sale of about $5 billion of loans and bonds to refinance debt and pay a dividend to its private-equity owners. SBA Communications, a real-estate investment trust that owns cellular phone towers, delayed on Monday plans to borrow a $2.29 billion loan meant to repay higher-cost debt.

Write to Vicky Ge Huang at vicky.huang@wsj.com and Matt Wirz at matthieu.wirz@wsj.com