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CDS Flow Summary - Bloodbath sends autos,lenders into orbit
Informa Global Markets - CDS Morning Insight (US) (February 28, 2007)

The bloodbath that the global equities markets were in today covered most default in the single name market with a murky film and collectively set records in the CDX indices. The global equity contagion was sparked initially by Shanghai's Composite Index drop of 9%, gained strength in Europe, and was galvanized by more than a 500 point stock market drop intraday in the US. Assisting the widening was the largest spike in the CBOE's Volatility Index (VIX), which skyrocketed 72% to 19.01 from 11.15 yesterday. It had more of a rise today than even after the September 11th terrorist attacks.

Amid the global woes, the auto benchmark names gapped out anywhere from 10% to 25%, with GMAC making a notable jump outward to 150/160 from 121/126. Dealing was active earlier, but the widening took hold of several groups of firms that fundamentally are considered sound, say traders. GMAC has been particularly eyed due to its ties to ResCap, whose status was only exacerbated by the equities meltdown. ResCap jumped to 185/195 from 140/147. Other problem lender Countrywide Financial did not come through the equity carnage unharmed. Countrywide Home Loans default has been feeling the pinch from the mortgage losses, but compounded with the global fright, its default hit new highs. Countrywide Home Loans ballooned to 68/72 from 46 Monday. The rest of the auto sector spun outward with Ford Motor Co widening to 505/515 from 460465, while Ford Motor Credit stretched to 275/285 from 230/235. General Motors widened to 390/405 from 347/357.

Former Fed Chairman Alan Greenspan is not completely blameless in all of this since in his discussions yesterday, he said the US economy could be heading towards a recession in the later half of this year. The 'r' word nevertheless has reverberated into ordinary analyst conversations as well. Still others in the CDS market in particular see the stock market slippage as a necessary and long-time-in-coming correction. Views on electronics retailer RadioShack could actually fall into this category since it was about the only single name CDS constituent to tighten. RadioShack eased to 110/120 from 117/122. Other retailers were not so lucky. Federated's profit rose but it said it would change its company name to Macy's Group as well as repurchase USD4bln of company stock. Its CDS extended on trade at 52 from 47/52 on a dim view of its profit forecast. In other movers, Toys R US extended to 405 from 376. Dole Foods widened to 480 from 465. MGM Mirage extended to 146 from 133.

Kathleen Fitzpatrick Hoffelder



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