Corporate Debt Safer Than Treasuries

If the U.S. is downgraded, there could be a handful of companies that would boast a higher credit rating than the U.S. Four major companies (Microsoft, Johnson & Johnson, Exxon and Automatic Data Processing) have a AAA rating from both S&P and Moody’s. Could corporations like these become the go-to safe haven for investors in distressed times? Based on the credit default swaps, these companies have a lower chance of default than the U.S. The swaps currently imply 0.75% cumulative chance of default for the U.S. over the next 5 years. Compare that to MSFT (0.7%), Exxon (0.5%) and J&J (0.35%). These cash rich corporations do not suffer from the political logjam currently plaguing our country’s economy. The U.S. runs the risk of not using its available resources to pay off its obligations, but there is no concern that these companies will miss coupon payments or principal repayments simply because they don’t want to.