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Markit Data: Big Macs Are Better Bet Than the US

Tuesday, 30 Aug 2011 08:33 AM

Research from Markit Data says that trading in the credit derivatives market shows that at least 70 large U.S. companies are now considered a better credit bet than the American government, the Financial Times reports.

The cost of insuring U.S. government bonds against default for five years is currently trading around 50 basis points (meaning it costs $50,000 a year to insure against default for $10 million worth of bonds), while the cost for companies such as AT&T, New Cingular Wireless and Oracle is less than 30 basis points.

The spread for Google, HP, Coca Cola – and, yes, McDonald’s – is also well below the sovereign spread.

To be fair, however, the U.S. is not the only country with corporations rated higher than its government.

Credit default swap spreads for Spain’s Telefonica and Iberdrola are also now well below that of their government, indicating that the notion that large companies are safer than their governments in other words has moved from aberration to acceptance in the derivatives world.

Moreover, the market for credit default swaps is not the only place indicating such perception. When Standard & Poor’s downgraded U.S. credit from triple A to double A, the ratings agency left triple A ratings in place for Automatic Data Processing, ExxonMobil, Johnson & Johnson and Microsoft.

Bloomberg reports that the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 6 basis points to a mid-price of 120.3 basis points.

But Bill Gross, the manager of the world's largest bond fund, feels like "crying in his beer" for having bet so heavily against U.S. government-related debt earlier this year, the Financial Times reported.

Showing a more bearish view on the U.S. economy, Gross said Pimco had initially dumped all of its U.S. debt holdings in March as he expected economic growth to be higher, resulting in inflation down the road.

That decision greatly undermined the performance of Pimco's Total Return Fund. As Treasurys prices rallied, the fund lost 0.97 percent in the past four weeks, while the benchmark Barclay's U.S. Aggregated Bond Index rose 0.23 percent in the same period, according to Lipper data.

So far this year, the fund has returned 3.29 percent, less than the 4.55 percent recorded by the Barclay's benchmark index.

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Research from Markit Data says that trading in the credit derivatives market shows that at least 70 large U.S. companies are now considered a better credit bet than the American government, the Financial Times reports. The cost of insuring U.S. government bonds against...
Big,Macs,mcdonalds,Bet,US
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2011-33-30
Tuesday, 30 Aug 2011 08:33 AM
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