The 10-year yield has surged nearly 50 basis points in the past month, reflecting stronger-than-expected economic data, including a drop in unemployment and persistently high inflation.
Nearly a quarter of S&P 500 companies now have lower credit-default swap (CDS) spreads than the U.S. government, signaling a shift in market sentiment. As bond markets reopen following the Columbus Day holiday, the U.S. Treasury market has been volatile.
The 10-year yield has surged nearly 50 basis points in the past month, reflecting stronger-than-expected economic data, including a drop in unemployment and persistently high inflation.
Political uncertainty may also be influencing markets. Former President Donald Trump has proposed a massive list of tax cuts, which the Tax Foundation estimates could add up to $6 trillion over a decade.
Meanwhile, Vice President Kamala Harris’s policy proposals could cost $3.5 trillion over the same period, according to the Committee for a Responsible Federal Budget.
Analysts Jason DeSena Trennert and Ryan Grabinski from Strategas highlight that 117 S&P 500 companies currently have CDS spreads lower than the U.S. government. A lower CDS spread implies a lower risk of default, making these companies appear more financially stable than even the government itself.
While a U.S. default would undoubtedly impact all companies, this group of 117 is seen as a proxy for high-quality assets. Notably, the 50 companies with the lowest CDS spreads, including tech giants like Apple, Microsoft, and Alphabet, outperformed the broader market during the inflation spikes of 2022 and 2023.
Should inflation surge again, investors may turn to these safer companies as they did during previous waves of economic uncertainty.
