The cost of credit protection on GM finance arm General Motors Acceptance Corp (GMAC) rose 30 basis points to 265 basis points, paring recent gains as investors bet that the Securities and Exchange Commission action could slow any move to separate the unit from its auto-making parent.
Five-year default swaps on GM itself rose 25 basis points to 815 basis points, meaning it costs 815,000 euros a year to insure 10 million euros of the company's debt against default.
The bad news on GM seeped through the rest of the auto sector. Ford Motor Credit protection rose 30 basis points to 425 basis points and Ford was up 15 at 670 basis points.
"Frankly the market has not reacted that badly. When you've had such a massive rally, the fact we've only widened 30 to 40 basis points is not that bad," the trader said. GMAC default swaps were trading above 500 basis points earlier this month.
The SEC action is the latest blow to the world's largest automaker, which is bleeding money from its core North American automotive operations and confronting its biggest financial crisis since a narrow brush with bankruptcy 13 years ago. GM said the subpoenas related to its financial reporting for pension and other post-employment benefits and to transactions between the company and its now-bankrupt parts supplier Delphi Corp.
Elsewhere, the cost of credit protection on Alcatel ticked higher after the company cut its 2005 operating profit margin forecast, blaming investment in new technology such as TV over Internet protocol.
Five-year default swaps on the French telecoms equipment provider rose 2 basis points to 85 basis points, said a default swap trader.
Europe's second-largest telecoms equipment provider brought down its operating margin target to around 9 percent from 10 percent, aligning it more with a 9.3 percent consensus of analysts' forecasts.
A larger-than-expected drop in quarterly profits at Stora Enso hit the Nordic paper and board maker's debt and led Standard & Poor's to warn it might cut its credit rating on the company. Stora Enso said it planned to cut thousands of jobs and sell or close a number of plants to counter a prolonged slump that contributed to the fall in third-quarter profit.
The cost of insuring Stora Enso's debt against default rose more than 10 percent, bid 6 basis points higher at 59 basis points, dealers said.
Cash bonds also weakened, with Stora's 5.125 percent euro bond due June 2014 widening 6 basis points, bid at 96 basis points over government debt, a trader said.
In the primary market, DaimlerChrysler sold a five-year, 1 billion euro bond, with healthy demand from investors leading the US-German automaker to increase the deal's size from an initial 750 million euros and tighten its spread.
The bond debuted strongly in the secondary market, tightening about 1 basis point in early trade to give a spread of about 68.5 basis points over equivalent government debt, a second autos trader said.
The deal comes two days after DaimlerChrysler said third-quarter operating profit rose 38 percent to 1.84 billion euros, beating analysts' forecasts thanks to a strong recovery at the flagship Mercedes Car Group.