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USD CDS Summary - Feds leave key interest rates unchanged
Informa Global Markets - CDS Morning Insight (US) (August 9, 2006)

Tuesday was a big day for interest rates, as the odds of a September interest rate hike fell sharply after the Federal Reserve left its target for overnight rates unchanged, as was widely expected. The Feds said inflation pressures seemed likely to moderate over time. Meanwhile the homebuilders sector felt a slight rumble with the decision, because builders are rate-sensitive and mortgage rates are linked to Treasury yields. Most names in the sector went slightly wider, on Tuesday as default in K.B. Home opened with a market of 200/205 and traded at 205 earlier in the session, but has since pulled out further to a closing market of 207/212 (D/D +9.5 bps). 5yr default in Pulte Homes Inc could also be seen widening from an opening market of 68/70 to a closing market of 72/75 (D/D +3 bps). Centex Corp saw some trading at 63 in the session on Tuesday, eventually finishing with a slightly wider market of 62/65 (D/D +3.5 bps). 5yr default in Lennar Corp also finished with a market of 72/75 on Tuesday (D/D +2.5 bps). Hotel operator Cendant Corp traded earlier in the session at 105, but still managed to move even wider as it topped off with a market of 119/121 (D/D +34 bps). Elsewhere, printing company R.R. Donnelley & Sons Co, saw its default surge 45 bps wider on the day to a closing market of 153/158, on the heels of LBO speculation.

In the auto sector General Motors Corp, cut its USD89bln U.S. pension obligation by USD3.9bln and trimmed its estimate for future spending on retiree health care by USD19.3bln after 34,400 excepted the company's buyout. The lower estimates factor in the smaller workforce, healthcare cuts for union workers and changes in benefits for salaried employees. 5yr default in GMCO could be seen tightening up as it traded at 677 and 670 on its way down to a closing market of 660/670 (D/D -15 bps). 5yr default in GMAC tightened marginally to a market of 202/212 (D/D -3 bps). The United Auto Workers union said it is willing to discuss further buyouts and other cost-cutting measures to help an ailing Ford Motor Co., a top union official said on Tuesday. Bob King, a UAW vice president who heads the union's dealings with Ford said UAW will have to be far more aggressive in finding a solution to the problems in which Ford finds itself. The news of UAW's forthcoming rescue attempt helped FMCO 5yr default tighten to a market of 715/725 (D/D -30 bps). FMCO also saw trading at 730 and 725 throughout the day on Tuesday. 5yr default in Ford Motor Credit also tightened to a closing market of 400/405 on Tuesday, which is compared to Monday's close of 405/411.

Andre Hinckson



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