Credit-default protection on Ford Motor Credit widened as much as 10% last week before paring its losses, after the U.S. auto maker said August sales rose more slowly than those of its two main competitors. Midmarket five-year default swaps on the financing entity of Ford widened 40 basis points Wednesday after the parent reported that morning that its U.S. sales rose just 12% during August. Compared to a 24% rise for DaimlerChrysler's U.S. operations and an 18% gain for General Motors, traders said the numbers didn't bode well for Ford.
Ford's default swap spreads had started the day at a midmarket of 395bps and by Wednesday's close in New York were quoted at 410bps. Default protection on General Motors Acceptance Corp. opened at 290bps midmarket and tightened about 20bps on the day based on the news. However, one trader noted that the default-swap market was unusually thin, even after the Labor Day holiday in the U.S., and said a lack of real liquidity could have exacerbated the moves in both directions. He predicted flows will not return to normal levels until after Sept. 11.
Scott Sprinzen, a Ford analyst at Standard & Poor's, disagreed with the credit derivatives market's take on Ford's sales announcement. He said the news was overwhelmingly positive and that "the market is overreacting to any problems Ford may have."
Five-Year Protection On Ford Motor
