Investors show that canned soup is safer than U.S. Bonds

June 8, 2009 by · Leave a Comment
Filed under: Opinion 

This is quite funny that traders and investors actually prices the risk of the U.S. Treasury defaulting on thier obligations higher than Campbell Soup doing the same.  With the amount of bonds being issued and the rising interest rates from the “Bong Vigilantes”, I have to agree that canned soup is safer at this point.  

I heard a hearing with Ben Bernanke in front of Congress this weekend and he was asked if foreign investors could not buy all the Treasuries we are going to issue this year, would he monetize that debt via open market purchases.  He said he would not, I am not sure how he is going to “not” do that unless we are going to raise taxes through the roof and seriously cut government spending.   I don’t see either happening soon so I would think the easy way out for the politically minded folks, is to just print the money and devalue the dollar.

News (Reuters):

No, we’re not talking about stocking a bunker for survival. This is talk about safe investments.

U.S. Treasuries, traditionally considered the safest of all investments because the debt is backed by full faith and credit of the U.S. government, is losing favor among derivatives traders to Campbell Soup Co, Microsoft Corp and Intel Corp as concerns over the government’s massive deficits and costly bailouts mount.

Investors are apparently concerned that sovereign debt of the United States, the world’s biggest economy, is more vulnerable to a huge sell-off than bonds of these three companies amid the most protracted economic downturn in decades, strategists said.

Those concerns are reflected in the pricing of credit default swaps, which are used both to insure bonds against default and to place bets on the likelihood of default, of Treasuries and of the three companies.

The cost to insure debt of the United States with credit default swaps for five years was 43.7 basis points on Monday, versus just 27.4 basis points for Campbell Soup and 29.8 basis points for Intel Corp , according to data from CMA DataVision. Higher prices for credit default swaps, or CDS, reflect a greater perception of a risk of default.

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