Investment Grade

On July 2, 2010, the Campbell Soup Company re-marketed its 3.5% bonds due 2015. Stunningly, the yield represented NO PREMIUM versus what US Treasury Bonds were paying on that day for the same maturity! Campbell is considered a very strong company and, if the ratings agencies can be trusted, its bonds are considered investment grade. So, what does this imply? Is the Campbell Soup Company as good a credit as the US Government? Apparently, the fixed income markets think so. What does this mean?

Alternatively, and in a brain stretch, investors may be contemplating where their capital might best be protected – and perhaps concluding that this is in the bonds of companies that have assets outside the grasp of the US Government (because if the company’s assets – plants and equipment – were all located in the US, then the US Government could ostensibly use its tax powers to take what it needs to finance the country). That may, in turn, suggest that the US Government has to prove and reassert that this country is still worthy of the notion that it will best treat the private capital that could otherwise flow to other countries. In sum, the US Government has to reassure investors that their debt is lower risk and deserving of the traditionally lowest yields when compared to other investments. Increased fiscal discipline could be steps in the right direction.