Correlation complication
The dramatic unwinding of trades in the synthetic collateralized debt obligation market following Ford and General Motors’ loss of investment-grade status has raised questions about the level of systemic risk in the market. Saskia Scholtes reports
When Standard & Poor’s downgraded Ford Motor Company and General Motors Corp. to non-investment grade on May 5, the impact of the cuts looked set to occupy credit market participants for some time to come, not least because more than $450 billion of Ford and GM debt would now relocate to investors’ high-yield portfolios.
While the downgrades of the two beleaguered auto giants were not unexpected, the timing caught some market players by surprise, resulting in turmoil in the credit derivatives
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