Ford Motor (F) had a nasty earnings warning Friday after the close. What concerns me the most about this is that S+P changed its outlook on Ford's long term debt to negative. The debt already has the lowest investment grade rating. According to Yahoo Finance, Ford has $172 billion in debt. Between Ford and GM there could be all sorts of distortions in bond land that could result.
Money could flow into corporate bonds from other investment grade bond issuers thus lowering yields. Or money could flow out of the corporate sector altogether, lifting yields, and into treasuries. Spreads getting very narrow or very wide; either way could cause upheaval.
Being more of an equity guy, I'm not sure which is more likely or if there is yet another scenario I haven't thought of that will come to pass. I know enough to know this could matter. I plan to track down what I can in the way of informed insight on this and I would suggest you do the same.
Wikinvest Wire
2 comments:
This all started with GMAC's profit warning 3 weeks ago. Auto's 350 wider since then in the long end. GMAC paper is already trading like ccc junk. Ford will soon be there. Spreads on all issues have widened becasue the profit warnings have spooked the credit markets. An move by the rating agencies under ivestment grade for GM or Ford will result in massive selling by trust companies and funds that can't hold junk. Anyways thats what a little bird told me
Andrew
http://www.exit50.com
great info, thanks Andrew
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