We see US corporate bonds as a safe investment because since the financial crisis, a large number of corporations have bolstered their cash holdings making them a relatively safe investment with a larger return than Treasuries. Domestic companies that do not rely heavily on foreign demand like JetBlue present a very attractive upside for investors.
Despite Standard & Poor’s recent downgrade of United States debt, from AAA to AA+, demand for Treasuries has skyrocketed. Yesterday, the attractiveness of U.S. government debt was reaffirmed. At the second of three auctions this week the Treasury sold $21 billion of 10- year notes at 1.90 percent, a record low yield. Recently, Fitch Ratings announced that it would not downgrade France’s AAA credit standing. (News, 2012) However, speculation of a downgrade and the expectation of a worsening sovereign debt crisis in Europe strengthened the appeal of U.S. debt. (Walker, 2012) Fitch said yesterday that there is a significant chance that Italy’s credit rating will be downgraded and that Spain’s credit will be reviewed, contributing to the appeal of stable U.S. debt comparatively.
Every time Greece receives its next installment of bailout funds, the markets take a deep sigh of relief and return to business as normal. The principle “out of sight, out of mind” may appease the financial markets, but Greece’s debt isn’t disappearing anytime soon.
Despite what you may have heard, U.S. gross domestic product will expand 2.1% next year, compared with 1.25% for all G-10 nations, the ten countries that agreed to make funds available to the IMF for drawing by members, according to Bloomberg’s survey of economists. This shows that the domestic economy is not as bad as the media and the general public perceives it to be.