Samurai bond spreads widen after GM stunner


By Chikako Mogi

TOKYO, March 17 (Reuters) - Spreads on Samurai bonds widened on Thursday, suffering after a profit warning by General Motors Corp. roiled global credit markets and the giant corporate bond issuer came one step closer to being rated junk.

Analysts said investors in Samurais, yen-denominated bonds issued in Japan by a foreign entity, were unsettled by how widely GM's warning shook U.S. financial markets, hurting credit spreads across the board.

The world's biggest auto maker shocked markets on Wednesday by saying its 2005 earnings would be as much as 80 percent below its previous forecast, prompting credit rating agencies to threaten to cut GM's rating to high-yield, or junk.

The three-year Samurais of General Motors Acceptance Corp. (GMAC), GM's finance arm, widened to around 155 basis points over yen LIBOR on Thursday from 130 basis points, traders said.

Spreads also widened on Samurai bonds offered by the finance arm of Ford Motor Co. , which said on Thursday it expected profit this year to be at the lower end of its prior forecast.

Bids on three-year Samurai bonds by Ford Motor Credit Co. pushed out 15 basis points to 150 basis points over LIBOR.

The Samurai market reaction was exaggerated by thin trading conditions, with Japanese investors reluctant to buy before the fiscal year ends this month, analysts said.

Even the Samurais of the Korean Development Bank were hurt, with spreads on its five-year note swelling to around 35 basis points over yen LIBOR from 29 basis points.

"Investors are too scared to actually strike a deal," said Mana Nakazora, a credit analyst at J.P. Morgan Securities.

But looking ahead, Nakazora and other credit analysts said the spread damage would likely be limited to GM and Ford, and perhaps not for long.

Even if those firms take longer to fix their balance sheets, few expect them to go bankrupt, making their paper attractive at some point, analysts said. GM has $57.7 billion of cash and marketable securities on its balance sheet.

If Japanese government bond yields fall more, it could drag down Samurai spreads. Investors may also want to buy corporate bonds and credit to take advantage of the spread widening, analysts said.

In Japan, where supply and demand dictates the direction of credit spreads more than individual credit risks, the GM case will likely be treated as an isolated issue, analysts said.

That means cash-rich and yield-hungry Japanese investors would likely keep putting their money to work in Samurai bonds.

"U.S. markets are more disciplined" in that they react swiftly to news of credit risk, said Takuya Mishima, chief credit analyst at Mitsubishi Securities.

"In Japan, GM probably won't serve as a wake-up call for a heightened awareness of individual credit risks," he said.



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