Ford credit rating upgrade to boost demand for US investment-grade bonds -analysts

By Matt Tracy

(Reuters) – The restoration of Ford Motor (NYSE:) Co’s investment-grade credit rating this week after almost four years as a “junk”-rated company is set to boost demand for high-quality U.S. corporate bonds, analysts said.

S&P Global Ratings on Monday upgraded the automaker’s credit rating to BBB-, returning the company to investment-grade for the first time since downgrading it to high-yield in March 2020.

Analysts said the rating boost for Ford’s billions of dollars of bond debt has been a positive for investment-grade bond demand, as index-tracking funds adjust their holdings.

“(With) $41 billion currently in the high-yield index, [Ford’s] upgrade is bound to create a massive positive technical tailwind in its wake,” Bank of America analysts said on Friday.

“We expect this to be particularly pronounced in the higher quality segments of the market.”

Investment-grade funds have seen net inflows of $1.7 billion over the past week, after outflows of $5.7 billion over the previous two weeks, according to JPMorgan research using data from EPFR.

Of the inflow, $1 billion in volume went into the long end of corporate-only funds, the most since mid-June, JPMorgan said.

S&P’s upgrade of Ford comes a week after the resolution of the United Autoworkers’ strike, with the company agreeing to a significant boost in compensation for its employees.

Just days after regaining its investment-grade rating, Ford Motor Credit raised $2.75 billion through the issue of 5- and 10-year bonds on Thursday.

The deal, which came five years after Ford last tapped the U.S. public debt market with an investment-grade rating, attracted enough demand to cover the amount being sold 5.49 times, according to IGM.

The average IG bond spread tightened 4 basis points on Thursday, according to ICE BAML data, after nudging 1 bp wider to 133 bps on Wednesday when the U.S. Federal Reserve announced its decision to leave interest rates on hold again.

That was the largest narrowing in a single day for the investment-grade index since the aftermath of regional banking stress in March, BMO Capital Markets noted in a report.