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Derivatives

DaimlerChrysler Spreads Narrow On Back Of CDO Ramp-Ups

Five-year credit protection on DaimlerChrysler tightened last week because collateralized debt obligation houses were selling protection to structure CDOs. Credit protection on the corporate tightened 13 basis points in a week to 102bps Thursday, said a London-based trader. Other European auto stocks also saw a narrowing of credit-default swap spreads. For example, Volkswagen moved to 51bps from 61bps in the same period.

Investors suspect that DaimlerChrysler's results will be slightly ahead of expectations and as result are selling credit protection, expecting spreads to tighten further after the results, said Philippe Landroit, fixed income analyst at HSBC in London. Investors are selling Volkswagen credit protection because the corporate offers the best yield in the sector, he added.

Moody's Investors Service rates DaimlerChrysler A3 and has it on negative outlook. Falk Frey, senior analyst in Frankfurt, said there had been no significant news flow over the week that would have driven in credit protection on DaimlerChrysler. He explained that the corporate was on negative outlook because of the poor second quarter performance of its U.S. arm. The full year target of break-even for the Chrysler is at risk due to a harsh U.S. market, he added. Moody's rates Volkswagen A1 and also has it on negative outlook. The corporate has spent a lot investing in new models and is losing its financial flexibility, said Frey.

Standard & Poor's rates DaimlerChrysler BBB plus and also has it on negative outlook. Fitch Ratings has the corporate as an BBB plus rating and on negative outlook.

Five-Year Credit Protection On DaimlerChrysler

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