UPDATE 1-Ford credit standing improve to spice up demand for US company bonds -analysts

UPDATE 1-Ford credit standing improve to spice up demand for US company bonds -analysts

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(Provides analyst remark in paragraphs 5 to 7, element on junk bond spreads in paragraphs 17 and 18)

By Matt Tracy

Nov 3 (Reuters) – The restoration of Ford Motor Co’s investment-grade credit standing this week after nearly 4 years as a “junk”-rated firm despatched some optimistic ripple results by way of the U.S. company bond markets, analysts mentioned.

S&P World Scores on Monday upgraded the automaker’s credit standing to BBB-, returning the corporate to investment-grade for the primary time since downgrading it to high-yield in March 2020.

Ford nonetheless has a Ba1, or junk, score from Moody’s or one notch beneath funding grade.

Analysts mentioned the S&P score increase for Ford’s billions of {dollars} of bond debt has been a optimistic for investment-grade bond demand, as index-tracking funds modify their holdings.

Demand for junk bond paper additionally grew as traders regarded to switch Ford bonds with different probably winners.

“Traders benchmarked to the excessive yield index will probably rotate out of Ford paper and into different excessive yield names, inflicting a optimistic demand dynamic for different credit on this universe,” mentioned Blair Shwedo, head of public gross sales and buying and selling at U.S. Financial institution.

BoFA World strategist Yuri Seliger mentioned in a report on Wednesday that rising stars similar to Ford, or people who transfer from junk to investment-grade, are anticipated to complete round $45 billion over the following 12 months, primarily based on the quantity of bonds that was one improve away.

“(With) $41 billion at the moment within the high-yield index, (Ford’s) improve is sure to create a large optimistic technical tailwind in its wake,” Financial institution of America analysts mentioned on Friday.

Knowledge from BondCliQ Media Companies notes that $67 billion in excellent Ford bonds would go away the junk bond market after the improve.

Funding-grade funds have seen internet inflows of $1.7 billion over the previous week, after outflows of $5.7 billion over the earlier two weeks, based on JPMorgan analysis utilizing information from EPFR.

Of the influx, $1 billion in quantity went into the lengthy finish of corporate-only funds, probably the most since mid-June, JPMorgan mentioned.

S&P’s improve of Ford comes per week after the decision of the United Autoworkers’ strike, with the corporate agreeing to a big increase in compensation for its workers.

Simply days after regaining its investment-grade score, Ford Motor Credit score raised $2.75 billion by way of the problem of 5- and 10-year bonds on Thursday.

The deal, which got here 5 years after Ford final tapped the U.S. public debt market with an investment-grade score, attracted sufficient demand to cowl the quantity being offered 5.49 occasions, based on IGM.

The common IG bond unfold tightened 4 foundation factors on Thursday, based on ICE BAML information, after nudging 1bp wider to 133bps on Wednesday when the U.S. Federal Reserve introduced its determination to go away rates of interest on maintain once more.

That was the most important narrowing in a single day for the investment-grade index because the aftermath of regional banking stress in March, BMO Capital Markets famous in a report.

Junk bond spreads have tightened 35 foundation factors (bps) this week, based on ICE BofA information.

“It is sizable, so if something, it will overwhelm on common on indexes, however as extra of a technicality,” mentioned Natalie Trevithick, head of funding grade credit score technique at asset supervisor Payden & Rygel in Los Angeles. (Reporting by Matt Tracy; Modifying by Kirsten Donovan and Louise Heavens)

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