Junk status debt to be hotly traded

The downgrade of General Motors and Ford to junk status last week might, according to some analysts, result in the alteration of how banks classify existing debt.

Typically, separate trading desks handle high grade and high-yield debt.

While it is true that the two desks generally work together more closely now than they have done in the past, there is still a fairly clear demarcation between the two classifications of debt.

However, it is considered very possible that, due to the amount of money to be made by the sale of GM and Ford paper, high-grade desks will be hesitant to give up the chance to handle the paper of the two carmakers just because they are now considered high-yield.

Additionally, because GM and Ford are so big and so powerful and generate so much money for Wall Street, they could try to exploit that reluctance and attempt to influence banks to alter how they classify existing debt.

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