Safety? Top US Corporate Debt Outperforms Treasuries

Corporate Bonds as an Alternative to US Treasuries

The list of reasons not to own U.S. Treasuries is lengthening. Investors are increasingly eschewing the world's 'safest' asset and flocking to top-tier U.S. corporate debt. This trend is not new but is gaining attention due to rising inflation, deteriorating public finances, and doubts about policymakers' resolve.

Apple, Microsoft, and J&J Bonds at Record Levels

Apple's two-year bond yield came within 3 basis points of the two-year Treasury yield, a record low spread. Microsoft's two-year debt traded through the sovereign yield earlier this year. Johnson & Johnson's 10-year yield spread over Treasuries narrowed to 27 basis points, the tightest on record. This reflects stronger corporate balance sheets compared to the U.S. government.

Credit Ratings and Investor Decisions

Microsoft and J&J are the only U.S. companies with triple-A ratings from all three major agencies. The U.S. government no longer holds a triple-A rating from any agency. This suggests that lending to highly rated corporations is no less risky than lending to Uncle Sam. Investors are increasingly viewing debt of 'too big to fail' companies as quasi-sovereign.