A 19 percent drop in second-quarter earnings at Ford Motor Co and news France Telecom was considering an acquisition put pressure on both of the major borrowers' debt on Tuesday.
Ford, the second-largest US automaker and the third-biggest corporate debtor, reported a loss in its automotive business for the quarter, driven by a big loss in North America, and said it continued to lose US market share.
The cost of insuring Ford debt against default rose about 15 basis points to 415 basis points, traders said - meaning it costs 415,000 euros a year to insure 10 million euros of Ford debt against default.
"North America was the big thing, and that came in weaker than most people had expected. That will drive the market to focus more on the similarities between GM and Ford on the industrial level," J.P. Morgan analyst James Banghart said.
Ford and its bigger Detroit rival General Motors both face cut-throat competition and escalating employee costs.
Ratings agency Standard & Poor's cut both to "junk" in May, sending bond markets into turmoil. Peer Moody's Investors Service still rates both auto makers at the bottom of investment grade but has warned it may cut those ratings.
"I would be surprised if Moody's doesn't act either today, or in the very near future," Banghart said. "I definitely think Moody's will cut Ford by at least one notch very soon."
Bonds of major telecoms borrower France Telecom were also pressured after it said it was considering making an offer for Amena, the mobile unit of Spain's Auna.
The French phone operator has spent three years repairing a balance sheet that was burdened by billions of euros of debt built up through acquisitions and licence payments, and the possible bid for Amena would mark a shift in strategy.
France Telecom's 8.125 percent euro bond due January 28 2033 widened 2 basis points, bid at 91 basis points over government bonds, a telecoms trader said.
The overall market was mixed, with more highly-rated credits faring better than less creditworthy names.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 36.1 basis points more than similarly-dated government bonds at 1511 GMT, 0.4 basis point less on the day.
But the iTraxx crossover index, used as a barometer of sentiment in the high-yield market, widened by 3 basis points, bid at 275 basis points, an index trader said.
In basic materials, the cost of insuring debt in Finland's Stora Enso, the top paper and board maker, and UPM, the world's top magazine paper maker, against default also rose slightly.
Five-year credit default swaps on both rose about 2 basis points, to 44 and 47 basis points respectively, a trader said.
GM's second-quarter results follow Ford's on Wednesday.
"For a while now, we've thought Q2 results (from GM and Ford) would inject a little reality into the market," J.P. Morgan's Banghart said, adding that the focus would be on GM's rate of cash burn.
"The market's being rallying for the last month or so, and I think this will add a bit of a negative tone," he said.
Comments
Comments are closed.