Five-year credit-default swap spreads on auto parts suppliers and manufacturers tightened slightly last week on positive earnings reports and refinancing efforts aimed at strengthening the beleaguered sector. But, spreads remained wide fueled by continued profit taking and uncertainty about ratings stability and labor negotiations.
"People are trading on sentiment and betting on momentum," said one New York trader. "We're still seeing two-way interest, but the flow is definitely skewed." General Motors Acceptance Corp. pulled in 20 basis points to 363 bps Wednesday, but its spreads were still nearly 100 bps wider than April 3, when parent company General Motors Corp. announced a majority-stake sale to Cerebus Corp. GM spreads ballooned on the announcement, but most other auto names tightened dramatically, if briefly. Traders said the steady spread widening later in the week reflected profit taking, GM's ratings instability and ongoing negotiations with Delphi Corp. and the United Auto Workers' Union.
Those same factors kept spreads wide last week, even on good news. "People long credit are closing out positions," said one trader, noting most players were hedge funds and prop desks. The price of protection on Lear Corp. pulled in 33 bps Tuesday to 732 bps after the company reassured investors of improved sales and earnings projections, but spreads were still 30 bps wider than April 3. Spreads on American Axle tightened 30 bps to 529 bps after the company reaffirmed projections, but were still 25 bps wider than the previous week. Ford Motor Credit spreads tightened 15 bps to 485 bps on the positive news from its suppliers, but those, too, were still 26 bps wider.
