Stone Ridge Investment Partners recently increased its allocation to the Ford Motor Co. 7.25% notes of '11 even though they have tightened from 605 basis points over Treasuries on Oct. 9 to 385 over last Monday. David Killian, portfolio manager at the Malvern, Pa., firm, says that if the equity market has indeed found a bottom, Ford's pension liabilities become less of an issue. Stone Ridge had lightened up before spreads reached their peak, and with a $2 million purchase when spreads were 400 off, is now close to a 5% position in Ford--its maximum allowable holding in a single credit. Killian says he does not have a specific spread level in mind that will make him consider selling Ford again.
Stone Ridge's behavior notwithstanding, it is becoming increasingly unusual for investors to overweight such a large issuer as Ford, argues Kevin Morley, head of high-grade research at Credit Suisse First Boston. Morley downgraded Ford to "hold" just as spreads were near their peak, and is not changing his mind despite the rally. "I suspect that given how fast its run in, we won't see another 100 basis points of tightening," he says. Morley notes that new products must still be brought out in a timely manner without defects, and demand may be slackening as the buzz over various financing incentives wears off. If new vehicle sales for November come in close to 15 million when they are announced today, spreads may come under pressure once again, he says.