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Derivatives

Autos Drive Out Credit Spreads

Auto manufacturers worldwide got hit by consumer credit concerns on manufacturers led by Ford Motor Credit last week, with DaimlerChrysler also suffering a 50 basis point spread blow out. Five-year protection for Ford blew out to around 700bps, up from 475bps the previous week and Daimler's spreads increased to 230-240bps last Thursday from around 180bps the week before. "A lot of the widening has been stateside, being led from the cash investors. Dealer desks are scrambling to hedge their positions on automakers like Ford and are moving to get euro protection," he noted.

Investors are concerned that restructuring at Ford will take longer than expected, said traders. This, and general market unease, has seen dramatic widening across the board, in the auto, chemical and utilities sectors.

With spreads moving at breakneck speed, traders are anticipating a pull back. "With a big move like this some capitulation is possibly due and spreads should see some tightening. Although I wouldn't bet my house on it," added one trader.

Ford still has a lot to achieve with its restructuring program and is losing market share in the U.S., noted Maria Bissinger, director in corporate ratings at Standard and Poor's in Frankfurt, which gives the U.S. manufacturer a BBB plus rating with a negative outlook. Moody's Investors Service, which rates Ford as Baa1 with a negative outlook, agrees that the manufacturer needs to show progress in gaining market share, as well as in its operating efficiency and liquidity, said a spokesman.

Five-Year Protection On Ford Motor Credit

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