Microsoft Bonds Are Seen As Safer Than Treasurys As Default X-Date Nears

  • Microsoft bonds are seen as safer than the Treasurys that are due this summer.
  • Microsoft bonds due August 8 have a yield just above 4%, while Treasury bills due August 6 have yields above 5.2%.
  • Microsoft and Johnson & Johnson have triple-A bond ratings from Moody’s and S&P.

Bonds issued by corporations with top credit scores now have lower yields than Treasurys due this summer as investors look to hedge their bets on a potential US default.

While Wall Street largely expects lawmakers to reach a deal on lifting the debt ceiling and avoiding default, negotiations between the White House and Republicans in Congress have dragged on.

In recent days, investor demand for top-rated corporate bonds have bid up those prices, sending their yields down and revealing varying assessments of risk.

For example, Microsoft bonds that are due August 8 have traded with a yield just above 4%, according to Solve Data metrics cited by the Wall Street Journal. Meanwhile, Treasury bills that mature on August 6 have yields above 5.2%.

Johnson & Johnson’s bonds due in November have yields that are nearly a percentage point below those of Treasurys with a similar maturity, the Journal said.

In less turbulent periods, corporate yields are above Treasurys. But now more investors are paying a premium to buy lower-yielding corporate debt, preferring it over traditionally “risk-free” Treasurys.

With the US at risk of defaulting as soon as June 1, yields on short-term T-bills have skyrocketed, with traders unsure if the Treasury Department will be capable of paying them in the near future.

Yields tend to rise when the price of a bond drops, as would happen when demand for it falls. Since April, the yield of a 1-month bill has jumped to a current rate of 5.6%, substantially higher than its historic average. This was also boosted by aggressive interest rate increases from the Federal Reserve over the past year, now standing at 5.25%. 

Microsoft and Johnson & Johnson are top choices for bond traders, given their triple-A status from Moody’s and S&P. Both companies are highly liquid and come with substantial profitability.

The US government’s creditworthiness is also top-rated, though raters have indicated that it would be downgraded in the case of a default.

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