PIMCO reportedly sold at least $500 million of Ford Motor Co. bonds earlier this month, according to a senior trader and a salesman at separate sell-side firms. The sale, which was in varying maturities, was seen as one of several factors that drove the 7.25% notes of '11 to as wide as 420 basis points over Treasuries last week. The bonds had spent much of the year in the 200-250 range, and were at 190 as recently as late May.
Mark Kiesel, executive v.p. and portfolio manager at PIMCO, declined to comment. However, in his latest "investment outlook," PIMCO President Bill Gross writes that his "quote de jour (sic) in PIMCO's investment committee" is that holding corporate bonds is "a lousy business."
In a healthy market, a $500 million seller of a $128 billion issuer such as Ford would not have much of an impact, but "in this market, it means something," says Greg Habeeb, portfolio manager at Calvert Asset Management. News of a large seller likely exacerbated negative sentiment about Ford's bonds, says one analyst. A host of factors, from speculation that credit downgrades were imminent, to investors reducing overall corporate exposures, to concerns about a double-dip recession have also put pressure on spreads. In such an environment, "when a big bid list comes in, it has a disproportionate impact," he says. The analyst says he does not know whether PIMCO was the seller, though he had heard there was a single major seller.
While the analyst believes a possible downgrade will not occur any time soon and advises investors to buy Ford debt, other analysts were rumored to be warning accounts of imminent downgrades. Goldman Sachs reportedly lowered its recommendation on Ford's bonds to "neutral." Jean Lantz, the firm's auto analyst, did not return calls.
Portfolio managers were nonplussed by the situation, and say they have little choice but to ride it out. "Everybody owns Ford and everybody is fully invested," says Mitch Stapley, portfolio manager at Fifth/Third Investment Advisors in Grand Rapids, Mich. Stapley says the widest he ever remembers seeing spreads prior to this cycle was in 1991 when they were at roughly 225-240 over Treasuries.