The price of credit protection on General Motors Corp. traded on a running basis for a few hours Wednesday, on the back of increasing positive sentiment on the automaker. It pulled back to points upfront, however, as sellers decided it was still too risky to sell protection without an upfront premium.
"One dealer tried to push to running and failed," said one New York trader. Dealers declined to name which firm this was. "There was a lack of investor interest," explained another dealer. "But we're right there, we're right on the cusp."
Anything below 1000 basis points usually trades running. GM's five-year credit-default swap spreads traded at 1007 basis points Tuesday, in from 1233 bps last month. They started running at 1020 bps Wednesday, but closed the day at 15 bps upfront plus 500 bps running. "Spreads are getting better," said one trader.
Positive headlines last week contributed to a month-long rally, driving spreads into many-month tights. The market was broadly optimistic about a near-term resolution of the parent company's industrial dispute with spin-off company Delphi Corp. and about its majority-stake sale of General Motors Acceptance Corp. "Going forward it looks like it's going to be fundamentally credit again," said one trader. "But the long-run remains to be seen."
Deutsche Bank analysts upgraded the car maker from hold to sell and CreditSights raised its rating to overweight. The major ratings agencies, however, maintained their ratings.Standard & Poor's and Fitch Ratings both rate GM B, rating watch negative.
