US credit spreads were little changed overall on Monday, while GMAC's bonds extended gains after a $6 billion federal bailout of the finance company earlier this week. Trading volumes were thin, as desks remained lightly staffed after Thursday's New Year's Day holiday.
The main index of investment-grade credit default swaps traded around 200 basis points, about 3 basis points wider on the day, according to data from Markit Intraday. GMAC's 6.75 percent notes due in 2014 rose to 88 cents on the dollar, up from 83 cents on Tuesday, their previous significant trade, according to MarketAxess. The bonds had traded around 44 cents on the dollar on December 18, before the US Treasury Department's bailout was announced on Monday.
GMAC's 6.875 percent notes due in 2011 rose to 70.5 cents on the dollar on Friday, up about 2 cents on the day, according to MarketAxess. They traded as low as 37 cents on the dollar last week before the Treasury bailout was announced. The Treasury on Monday bought $5 billion in equity in GMAC and disbursed a $1 billion loan to General Motors Corp so the automaker could buy GMAC equity.
Five days earlier, GMAC won Federal Reserve approval to become a bank holding company, a move intended to help it avoid bankruptcy by giving it freer access to emergency government funds. "While we still regard GMAC's operating uncertainties as enormous, we also think the implications of the bank holding company approval - particularly in the short run - are both significant and positive," Thomas Ferguson, analyst at high-yield research firm KDP Investment Advisors, said in a recent research report.
After a year of massive losses, corporate bonds closed out December on a strong note, with spreads at their tightest level in more than six weeks. On average, corporate bonds ended the year yielding about 604 basis points more than Treasuries, the tightest spread since November 19, when they yielded 606 basis points over Treasuries, according to Merrill Lynch data.
Spreads are still nearly triple their year-end 2007 levels, however, when were just 203 basis points over Treasuries. Junk bonds spreads closed the year at about 1812 basis points more than Treasuries, the tightest level since November 18, when they yielded 1796 basis points over Treasuries. They had ended 2007 at just 592 basis points over Treasuries.