Quote of note:

With some $292 billion in outstanding G.M. bonds and $161 billion in Ford bonds, the potential redistribution is titanic. How disruptive the process is for the corporate bond and high-yield bond markets will not be known immediately. But there certainly will be some indigestion.

Junk Ratings Make a Big Splash, Ripples to Follow
By JONATHAN FUERBRINGER

Many investors knew it was coming, but they did not expect that two of the nation's biggest issuers of bonds would be reduced to junk status so soon.

As a result, Standard & Poor's announcement at midday yesterday that it was cutting its credit ratings for both General Motors and the Ford Motor Company set off a selling spree in the corporate bond market. The rating cut to below investment grade begins a process of adjustment that could ripple through, and roil, the fixed-income markets for weeks.

"It was a Richter-scale event," said Edward B. Marrinan, head investment-grade strategist at J. P. Morgan. "The market is selling off violently," he said from the trading floor, soon after the announcement. "The downgrade was no surprise, but the timing of it was and has caught the market on the hop."

Some investors - like pension funds that prefer investment-grade bonds or are restricted to only such securities - will now sell their G.M. and Ford bonds to those that invest in high-yield or junk bonds and to other investors, including hedge funds, that favor so-called distressed securities.