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Amazon, Apple, Google preferred over US government in debt markets

Amazon, Apple, Google preferred over US government in debt markets

Amid an ongoing debt-ceiling crisis in the United States, debt markets consider the country’s government as a less ideal debtor than the likes of Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Advanced Micro Devices (NASDAQ: AMD), and Google (NASDAQ: GOOG) for the period of five years.

Indeed, debt markets consider loaning money to the above technology giants to be less risky over the course of five years than to the US government, according to the May 16 chart shared by Tom Dunleavy, an analyst at cryptocurrency intelligence platform Messari, in a tweet on May 18.

Five-year CDS spread of US and FAANG+ companies. Source: Tom Dunleavy

Specifically, the above-listed companies are part of the FAANG+ group, an index featuring 10 stocks from the upper echelons of the Nasdaq 100 (traded as the US Tech 100), and five-year credit default swap (CDS) basis points for each of them are currently lower than that of the US government.

Investors betting on US default

As for CDS, it refers to derivatives allowing one investor to swap a default on a debt 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 increase as traders start betting on the probability of default and try to profit from it.

In other words, as an ActionForex report from May 16 explains:

“The popularity of these swaps is a demonstration of the sentiment that many people are considering that a default by the US government on its debt could actually happen.”

As a reminder, the Biden administration and the Republicans in the US House of Representatives have been debating on a deadline for increasing the national debt ceiling (a Congress-set limitation 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 severe economic reset by this time next year in the United States after the Federal Reserve raised interest rates to their highest levels in over two decades and as the producer price index (PPI) has been declining at the fastest rate in history.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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