IMPORTANT POINTS:
- Markets prefer to lend money to companies like Amazon, Apple and Google rather than the US government.
- Stocks of these tech companies have a lower risk of default under five-year contracts.
- This reflects concerns that the United States will face difficulties in servicing its debt, which could lead to a government default.
Amid a US debt ceiling crisis, markets see the US government as a less-than-ideal borrower compared to companies like Amazon, Apple, Microsoft, Advanced Micro Devices and Google over a five-year period years.
Debt markets see lending to these big tech companies as less risky for five years than lending to the US government, according to the chart shared by Tom Dunleavy, an analyst at cryptocurrency intelligence platform Messari.
The companies mentioned above are part of the FAANG+ group, an index that includes 10 stocks from the upper layers of the Nasdaq 100 (traded as the US Tech 100), and the basic points of five-year credit default contracts (CDSs) for each one of them are currently lower than those of the United States government.
Investors betting on the US default
As for CDS, it refers to derivatives that allow an investor to exchange a debt default with another investor. To swap the risk of default, the lender buys this product from another investor who agrees to compensate them if the borrower defaults. These derivatives rise as traders begin to bet on the probability of default and try to profit from it.
In other words, as a May 16 ActionForex report explains:
“The popularity of these swaps shows the sentiment that many people are considering that a US government default on their debt could really happen.”
As a reminder, the Biden administration and Republicans in the US House of Representatives have been debating raising the national debt ceiling (a limitation set by Congress on how much money the federal government can borrow to pay its bills). by June or risk financial catastrophe.
Meanwhile, experts have been warning of the possibility of a harsh economic reset next year in the United States, after the Federal Reserve raised interest rates to their highest levels in more than two decades and as the index Producer price index (PPI) has been declining at the fastest rate in history.
