Five-year credit protection on General Motors Acceptance Corp. bucked a general widening trend last week before market rumors pushed its spreads into line. Protection moved in on Tuesday after the credit arm of General Motors announced positive earnings, noted a trader. The following day, however, rumors flooded the market of a possible commercial paper issuance, as well as of a supposed impending downgrade by a ratings agency, and this pushed spreads back out, he said. Protection tightened to 105 basis points on Tuesday, in from around 115 the week before, then widened back out to around the same level last Wednesday.
Spread tightening in the auto sector bucked a trend of widening spreads last week that surprised many traders. In light of positive earnings statements and a bullish outlook there was no obvious reason behind the move, noted one trader. As spreads had been screaming in for the past few months, however, many names have been at their two-year lows and last week's move likely represents a correction of this trend, noted traders.
Fitch Ratings rates GMAC triple-B plus and has it on negative outlook. Chris Stuve, credit analyst with the rating agency in Chicago, says the negative outlook is largely based on that of its parent, which continues to face challenges in its U.S. and European automotive operations. An expected decline in U.S. mortgage refinancing this year will also likely dent GMAC's profitability, he notes.
