The recent sell off in auto bonds fueled by fears of a General Motors downgrade to junk is leading investors to reevaluate their risk tolerance and market participants speculate they will react by either putting money into high-quality, short-duration names or will move into newly cheapened, high-beta assets.
Milton Ezrati, senior economic strategist at Lord, Abbett & Co. in Jersey City, N.J., said he sees investors taking the more conservative route. "The only obvious choice is to upgrade quality and short duration; it's very difficult to make a case to be long high-grade credit," he noted.
Yet one high-grade portfolio manager is more aggressive and anticipates some of the medium-beta names, which have cheapened 30 basis points of late, could rally. A high-grade salesman agreed, noting many riskier crossover names have cheapened as a result of the GM scare and could now be more attractive to investors.
