The cost of insuring the debt of General Motors against default hit a record high after a $15.5 billion quarterly loss reported.NEW YORK (Reuters) - The cost of insuring the debt of General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) against default hit a record high on Monday in the wake of a $15.5 billion quarterly loss reported by the automaker on Friday.
GM's benchmark long bonds were steady, holding close to record lows
set on Friday after the automaker reported its second-quarter loss, the
third-largest in its 100-year history.
"GM credit spreads continue to be priced on the basis that just
about everything will keep going wrong," Glenn Reynolds, senior analyst
at fixed-income research service CreditSights, said in a report on
Monday.
"The price action has now blown past the Chrysler meltdown of the
second half of 1990" and is reminiscent of the bursting of the tech and
telecommunications bubble, he said.
GM's five-year credit default swaps rose to 47.5 percent of the sum
insured as an upfront payment from 46.5 percent at Friday's close, plus
500 basis points in annual payments, according to Phoenix Partners
Group. This means it would cost $4.75 million to insure $10 million in
debt for five years, plus $500,000 a year.
GM's benchmark bonds with an 8.375 percent coupon due in 2033 were
unchanged at 47.5 cents on the dollar, according to MarketAxess. They
had hit an all-time low of 46 cents on Friday.
Its 7.2 percent notes due in 2011 fell to 60.5 cents on the dollar on Monday from 62.25 cents on Friday.
General Motors' quarterly loss came as its North American sales fell
20 percent and plunging prices for SUVs prompted deep charges for its
auto finance business.
The plunge in auto bonds took a toll on the high-yield market, which
posted a 0.32 percent total return loss on Friday alone, according to
data from Merrill Lynch. Overall yields on junk bonds rose to 11.5
percent, the highest since 2003.
"Significant auto sector dislocation could become the catalyst for
broader weakness in the high-yield market," Bank of America said in a
report.
(Reporting by Dena Aubin; Editing by Kenneth Barry)
© Thomson Reuters 2008 All rights reserved
Manufacturing 
