Friday, July 14, 2006

This just in... Ford is in financial trouble...

In what can hardly be called news, Moody's downgraded Ford Motor Corp and Ford Motor Credit (FMC) today. The parent is now rated B2 (was Ba3) and FMC is now rated Ba3 (down from Ba2). As Han Solo once said to C3-PO, "I'm glad you're here to tell us these things," Moody's.

On April 5, 2005, when Moody's first put FMC (then rated A3) on credit watch negative, their benchmark 7% 2013 issue was trading around +300/+310 to the 10-year. Disney 6.2% of 2014 (then Baa1) was around +60/10-year at the time, Time Warner (then Baa1) 6.875 2012 was around +75/10-year . And Moody's calls themselves an "investors service"?! Sounds like the investors were well aware of Ford's problems before Moody's "informed" us with ratings changes. Correct me if I'm wrong, but doesn't the majority of Moody's revenue come from bond issuers? I seem to remember someone telling me something about not being able to serve two masters.

Meanwhile, the uptick in oil has helped TIPS have a pretty good 2 days. The old 10-year TIP (2% due 1/15/16) has outperformed the current 10-year by 11 ticks the last two days. I'd sell the heck out of TIPS here. 1) Maybe oil will go to $100/bbl and gas will be $4/gal. But if it doesn't and just stays here, the energy component of CPI will be pretty tame next year. 2) If monetary policy is effective, the Fed's activities so far should give us some degree of dysinflation next year. 3) TIPS will always get a special bid from those who have CPI-related liabilities. From time to time, what looks like a nice bid for TIPS may actually be pension funds putting more money to work in an asset that better fits their liability stream.