General Motors six percent euro bond due October 2006 was trading at 93.6 per cent of face value, down almost two percentage points on the day. The deal was yielding almost 400 basis points over government debt, more than 50 basis points more than on Wednesday. Bond yields rise as prices fall and vice versa.
GM will drag the rest of the market with it. Ford is already falling and everything else opened eight to 10 basis points wider (in yield over government bonds), a European trader said.
Fords 5.625 per cent euro bond due June 2006 was yielding around 390 basis points over government debt by the same time also around 50 basis points more than on Wednesday. The bond had fallen about 0.5 percentage points by that time to trade at just over 93 per cent of face value.
Elsewhere, bonds from other major auto-makers also fell, with most around 10 basis points higher in yield.
Contagion from GM and Ford is hurting even usually more solid firms like BMW and Peugeot, said the trader. With accounts (clients) so nervous about autos in general they will likely leave the entire sector rather than shift to more stable firms.
Traders said that despite the general gloom bonds from BMW, Peugeot and Volkswagen would outperform those of their larger peers but might get dragged down enough to become attractive to investors with the stomach for risk.
If you look at Peugeot you have to say its a solid credit story so if it slips 15 basis points out (in yield) then it starts to look a good buy, said a trader at a British bank. But not many people will have the appetite for risk in a market this volatile.
As well as cutting General Motors, S& Ps also said it may cut the BBB+ long-term rating of Ford, further undermining confidence in the auto industry which is already struggling with poor sales expectations.
Analysts at US Bank Morgan Stanley, who have slashed their earnings predictions on the worlds largest auto firms, estimate that car production will fall by 320,000 next year in the US, while most analysts believe production will be down by around 220,000 in Europe. (Reuters)