The worldwide sovereign debt crisis may be about to take a turn for the worse if recent bond sales are any indication. Some corporate bonds have begun to yield less than U.S. treasuries, in effect suggesting that the corporate bonds are the safer bet. As reported by Bloomberg and NPR, Berkshire Hathaway 2-year notes are yielding 3.5 basis points less than similar maturity treasuries.
"It's a slap upside the head of the government," said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, atAsset Management, which oversees $22 billion. "It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary."
It's not just corporate bonds that are beating treasuries, either. The U.S. now has to pony up an additional 60 basis points in yield to convince investors to choose U.S. treasuries over German bonds. Germany and Canada are the only G7 countries whose debt will not equal or exceed GDP by 2014.
Obama's proposed budget is creating a nightmare scenario for U.S. debt. Debt service is taking up 7% of the taxes collected today. Imagine the impact that losing our AAA rating would have on the amount required just to pay the interest on the national debt.
When private companies can borrow money on better terms than a global superpower, it's time for our country to get a check-up from the neck up.