At least two portfolio managers say they are considering shifting their positions in auto credits because spreads have begun widening in the sector after a three month rally. David Killian, portfolio manager at Stone Ridge Investment Partners in Malvern, Pa., says he is considering swapping out of 10-year General Motors paper to pick up a similar yield in five-year maturities. He says he would add GM because that is the auto credit in which he is currently lightest. He wants to wait and see if the name weakens further. Last Friday, GM's 6.125% of '07 were trading at 146 over five-year Treasuries. He says the notes were at least 50 basis points wider some three months ago.
Greg Habeeb, portfolio manager at Calvert Asset Management in Bethesda, Md., has already begun to buy. He bought 30-year GM paper last Friday morning. He says he preferred the bonds of Ford Motor Co. to those of GM, because he never felt that the Ford bonds should have been trading 40 basis points wider, as they had been in recent months. Last week, however, GM widened more than Ford. GM's 8% notes of '32 were at 206 basis points over 30-year Treasuries, while Ford's 7.45% notes of '31 were 229 over Treasuries, some 10 basis points closer than they have been for the past few months. Habeeb says he will continue to add as spreads widen, as he has been very light in the sector relative to other money managers.