Borrowing Becomes More Expensive for Obama than Buffett?

Bloomberg has an article today with one of those fabulous headlines guaranteed to garner lots of clicks: "Obama Pays More Than Buffett as U.S. Risks AAA Rating." So naturally, I nearly replicated it here. As it turns out, U.S. debt is becoming pricier to issue than that of some AAA-rated companies, billionaire investor Warren Buffet's Berkshire Hathaway included. Is the bond market correct or crazy to require more yield for U.S. debt?

Here's a blurb from the article:

Two-year notes sold by the billionaire's Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe's Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an "exceedingly rare" event in the history of the bond market.

What sticks out to me there is the term of the notes: two years. So essentially, these investors are betting that there's a higher likelihood that the U.S. will default on its debt in the next two years than Berkshire, P&G, J&J and Lowe's. Oh c'mon! Is there any chance of the U.S. defaulting so soon?

I doubt it, very highly. Even if you think that the U.S. government is on an unsustainable spending path (and I do), it's pretty extreme to think that the nation will actually default on its debt. And it's even crazier to think that will happen in the next two years. Private firms, on the other hand, could more likely experience some sudden shock leading to their bankruptcy in the short-term. 

When it comes to longer-term U.S. debt, I could, however, kind of understand if investors began to demand a higher yield. There's a significantly greater likelihood, for example, that the U.S. could default 10 or 20 years down the road. Unless the government gets serious about deficit reduction and paying down some of its borrowing over the next decade, we'll be in serious trouble. So if you think Washington is too dysfunctional to manage its spending, then you may think that default could one day happen. But in the next two years, I just don't see it.

>

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

Things Not to Say to a Pregnant Woman

You don't have to tell her how big she is. You don't need to touch her belly.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Things Not to Say to a Pregnant Woman

You don't have to tell her how big she is. You don't need to touch her belly.

Video

Maine's Underground Street Art

"Graffiti is the farthest thing from anarchy."

Video

The Joy of Running in a Beautiful Place

A love letter to California's Marin Headlands

Video

'I Didn't Even Know What I Was Going Through'

A 17-year-old describes his struggles with depression.

Video

Google Street View, Transformed Into a Tiny Planet

A 360-degree tour of our world, made entirely from Google's panoramas

Video

The Farmer Who Won't Quit

A filmmaker returns to his hometown to profile the patriarch of a family farm

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

More in Business

Just In