Ford Motor Company had its bonds upgraded by Moody's earlier this week, to Baa3, which officially moves it from so-called junk status to investment grade. This news might not seem to be of interest to anyone except people who have invested in Ford's bonds. But it could have a ripple effect throughout the high-yield bond market.
Ford is a huge issuer of debt, so much so that it constituted 3 percent of the Barclays U.S. Corporate High-Yield index all by itself. With its debt upgrade, it will no longer be part of that index, meaning that managers of high-yield funds will have to sell the Ford debt and replace it with something else. We are likely in for a good deal of reshuffling at high-yield bond funds.
There's also a lesson here about index funds: Even though they can seem stable, they are hardly static. Anyone who bought a high-yield bond fund in part because of Ford's reliability is now going to have to reassess that investment.
No comments:
Post a Comment