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Autos Spread Tightening Leaves Traders Puzzled

08 Dec 2003

Five-year credit protection on automakers tightened last week, leaving many traders puzzled over the cause. For example, spreads on Ford Motor Credit moved in 15 basis points ahead of an announcement of weaker than expected sales figures and then a further 15bps after the announcement, noted one trader. Ford credit-default swaps traded at 180bps last Wednesday, in from 225bps the previous week.

Most of the activity was speculative prop trading. Overall spread tightening in an already tight environment also led many traders to speculate that a full capital structure synthetic collateralized debt obligation may have been priced, although others questioned whether this would have made such a major impact on auto names.

Moody's Investors Service affirmed Ford's Baa1 rating a month ago. Bruce Clark, senior v.p. in New York, noted that the auto giant has made strong progress in several areas including both a reduction of costs and improvement in the image of its brand. In spite of this, Ford faces challenges and it is how the firm addresses these over the next two years that will play most heavily on its ratings, he said. The corporate has a comprehensive plan to address these and the liquidity of its assets will provide a cushion to realize its plans, he said.

Five-Year Protection On Ford Motor Credit

08 Dec 2003