Treasuries are widely considered a safe option, but a default could test that theory. The next best option could be a corporate bond from a blue-chip American company with robust earnings, like Microsoft.
Microsoft’s bonds that are due on August 8th have a yield of just over 4% as of May 23, according to data cited by the Wall Street Journal. That means the blue-chip tech company is seen as more creditworthy than the government, at least in the short term.
The company also has a triple-A rating from both Moody’s and the S&P, which puts it on par with the U.S. government. The government’s rating, however, was famously lowered when debt ceiling negotiations hit crisis levels in 2011, so this factor is worthy of attention.
Gold is a traditional safe haven that seems to hold up well when the U.S. looks less creditworthy. Gold ETFs, like SPDR Gold Shares, rallied in the summer of 2011 prior to President Barack Obama and House speaker John Boehner striking a deal just two days before the limit was expected to be breached.
The SPDR Gold Shares ETF is flat this month. However, gold prices could rise as the deadline to raise the debt limit gets closer. Investors could seek shelter in this asset while the debate rages on.
Warren Buffett may just be more creditworthy than Uncle Sam. After all, he’s the man most investors and policymakers turn to when banks are failing or a crisis is brewing.
In recent months, Buffett’s Berkshire Hathaway has been a net seller of stocks and a net buyer of Treasuries. He revealed at a shareholders meeting in early May that the company bought Treasury bills worth $7 billion in April alone and has another $3 billion in Treasuries with yields higher than 6%.
Altogether, the company has a jaw-dropping $130 billion on its books, which is earning higher interest payments as Treasury yields rise. Buffett himself has clearly said that he is not worried about a US debt default, which means he could see the short-term spikes in interest rates as an opportunity.
Berkshire stock currently trades at a price-to-book ratio of 1.39 as of May 25, which is close to Buffett’s old buyback threshold of 1.2. Investors seeking a safe haven may find the current valuation much more appealing.
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