Investors favor corporate bonds amid debt impasse

Fears over the U.S. government’s date with debt-doom have sparked a rush into highly rated corporate bonds over other asset classes, investors and analysts say.

Investor Mike Zebarth, of Rock Fall, who has been managing his own portfolio for about a decade, said he sees corporate bonds as a good alternative to Treasuries right now. He turns 64 “very shortly” and said he’s looking for a safe place for his money.

The government is locked in a debate about increasing the limit it can borrow. If it does not, the Treasury Department says it will run out of money and will likely become delinquent on making payouts to — among others — Social Security beneficiaries and some government employees. While the debt limit could be raised by executive order, politicians have crafted bills requiring cost cutting or tax increases as part of a budget bill that has tied up the matter.

But Zebarth said it’s not next week, when Treasury says it will hit the default date, that worries him.

“I am worried about how much debt is being carried by the U.S. and all the states,” he said. “You just wonder what’s going to happen in 10 years; are there any safe havens for your money?”

To prepare for retirement, he’s recasting his portfolio and could be moving 40 or 50 percent of it from equities to fixed income.

And that’s where some of the corporate bonds come in, he said, though he said he prefers to invest in exchange-traded funds containing corporate debt.

“You got a lot of corporations that are bigger than a lot of countries and more stable,” he said.

Right now, the U.S. has a AAA credit rating. Only four U.S. companies have that same rating: Johnson & Johnson, Microsoft, Exxon Mobil and Automatic Data Processing (ADP). Fairfield-based General Electric Co. has a AA-plus rating, which is what the U.S. could slip to if it fails to address this situation.

“GE, as both an equity and a bond, is a good buy,” Zebarth said, noting the company is diversified and pays a good dividend and yield.