Auto-Parts Makers Are Diving Into the US Junk-Bond Market

Three auto-parts makers are borrowing in the junk-bond market this week, helping to push debt issuance for the car sector and related companies up 6% this year even as rising global tariffs potentially weigh on profits.

Parts maker American Axle & Manufacturing Inc. is raising roughly $2.3 billion in bonds and loans to support its purchase of U.K. peer Dowlais. German manufacturer ZF Friedrichshafen AG garnered enough demand from bond buyers to double its junk-debt sale to $1.5 billion, Bloomberg News reported on Tuesday. Automotive-technology company Forvia raised $500 million on Tuesday.

These companies are selling debt as US President Donald Trump ramps up import levies, weighing on overseas car and auto-part manufacturers, which may pass added costs onto customers. That’s pushing yields for debt in the sector slightly higher.

“Some of the deals are coming at comparatively attractive pricing to non-auto sectors, so in a market hungry for yield, they screen attractive,” said Mike Best, a portfolio manager for senior-secured loans at Barings, referring to bond sales from parts makers.

For example, ZF’s $1.5 billion bond due in five and a half years offered a yield of 7.5%, well above the average yield of 5.6% for borrowers at the same ratings tier, according to data compiled by Bloomberg. Forvia’s eight-year notes, which can’t be bought back for three years, yield 6.75%.

High-grade and junk-bond sales from automakers and parts manufacturers have risen 6% from the same time last year, according to CreditSights. While there are lingering concerns over tariffs, investors are drawn to this week’s deals because they apply to specific needs like M&A and come equipped with higher credit ratings.

“Tariffs are a near-term headwind, but they will protect the US profit pool in the long-term,” said Todd Duvick, a senior analyst at CreditSights, adding that suppliers of auto parts can pass through cost increases to customers.

Barings’ Best said that so far, the “worst fears” about tariffs were not yet realized, but he cautioned that companies with weaker credit ratings are under pressure as the economy slows and consumers limit discretionary spending. The junk-rated auto companies that are selling bonds now are generally rated at the upper end of the high-yield spectrum, with ratings in the BB tier, he said.

“On the lower end of the high-yield market, the auto sector is still looked at quite skeptically,” Best said.

Copyright 2025 Bloomberg.