GM Alliance Chatter Raises the Stakes

The possibility of an alliance with Nissan and Renault has boosted the stock and bonds of General Motors (GM Quote) from already heady levels. Given the fundamental troubles at the junk-rated automaker, investors' optimism about the proposal only makes the stakes higher and the fall potentially harder if the deal doesn't happen.

GM shareholder Kirk Kerkorian's suggestion last Friday that the Detroit automaker ally with Nissan and Renault is just an idea thus far, but it sent GM's stock and bonds up about 8% on June 30. The rally punctuated the extent to which GM's securities have underpinned the performance of their broader universes this year. GM is the best-performing stock in the Dow Jones Industrial Average, up 51.5% through July 5 vs. 4.1% for the index. GM, whose current weighting in the Dow is 2.1%, is even more important to the high-yield bond market, as autos compose over 10% of junk bonds.

GM and Ford (F Quote) have added about 1%, or 100 basis points, to the overall high-yield market's first-half total return of 3.14%, according to Lehman Brothers. Without the autos, the high-yield market returned 2.19% through June 30. ...