If what's good for General Motors is good for America, as one GM chairman suggested a half-century ago, then what's bad for GM can't be good for GM bondholders. Or can it? Steady selling has pushed up yields on some GM bonds as high as 12%. At about four percentage points above the average junk-bond yield, that's awfully tempting. But it also suggests that GM bonds are extraordinarily risky.
GM and rival Ford are swimming in red ink. GM lost $1.6 billion from operations in the third quarter, and Ford, $1.3 billion. The automakers are bedeviled by intense competition, high labor costs, declining market share and an inability to wean buyers from incentives. High fuel prices are dampening enthusiasm for expensive sport utility vehicles. And GM could be on the hook for up to $12 billion in benefit liabilities for workers who retired from Delphi, its former parts unit, which recently filed for bankruptcy protection.
Some analysts speculate that GM itself might take the Chapter 11 route, but for now the credit-rating agencies think that's a long shot. Although GM's bonds are deep in junk territory (Standard & Poor's rates them BB-), they're still well above the triple-C rating that SP usually gives to companies it fears are on the verge of bankruptcy. (SP rates Ford bonds BB+, the highest junk grade.)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If GM bonds look too risky, the debt of its finance unit, General Motors Acceptance Corp., might make sense. A GMAC bond due in 2014 recently yielded 7.6% to maturity. SP rates GMAC debt BB, but GMAC's bonds are seen as considerably safer than those of GM because, among other reasons, they are backed by customer loans. GM says it plans to sell the majority of its finance unit, which could result in a ratings upgrade for GMAC. That would almost surely result in higher prices (and lower yields) as managers of high-grade bond funds snap up GMAC debt.
-
Stock Market Today: Stocks Pause but Nvidia Hits New All-Time HighsThe major equity indexes were mostly mixed on Monday, but Nvidia hit yet another new all-time high.
-
Mark Cuban, Kamala Harris, and Taxing Unrealized GainsUnrealized Gains Some warn that taxing unrealized gains could devastate the economy, but are those fears realistic?
-
Best Banks for High-Net-Worth Clients 2024wealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2024.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? While the stock market does have regular hours, trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
The Current I-Bond Rate Until November Is Mildly Attractive. Here's Why.Investing for Income The current I-bond rate is active until November 2024 and presents an attractive value, if not as attractive as in the recent past.
-
What Are I-Bonds? Inflation Made Them Popular. What Now?savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. So how do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
