NEW YORK -- Automakers' bonds saw significant weakness on Monday, following Friday's news of a $13 billion debt issue from General Motors and its finance unit.
"People are obviously trying to set up for all the onslaught of supply coming up this week," said one corporate bond trader.
Auto sector spreads, the extra yields that corporate bonds pay over Treasuries, widened by about 0.05 percentage point, traders said.
General Motors Acceptance Corp.'s 8 percent bonds due in 2031 traded at 3.56 percentage points more than Treasuries, about 0.05 percentage point wider than Friday, according to MarketAxess.
GM said on Friday that it will raise about $10 billion, most of which will be used to shore up its underfunded pension plan. The company's finance unit, General Motors Acceptance Corp., will raise $3 billion to fund ongoing operations.
"We don't know if this deal is timed to coincide with the release of the movie 'The Hulk,' but we suspect it has a similar destructive power for the corporate bond market if it is not placed well. And we are not sure that that much debt can be easily well placed," FTN Financial said in a report.
FTN auto analyst Joe McCusker lowered his recommendation on GM paper to "underweight" from "neutral," warning that the new debt offering will weigh heavily on GM's bonds.
"Ford is likely to outperform GM over the next several weeks as this enormous GM deal is digested and GM emerges as the target of labor negotiations over the summer," McCusker said in a report.