Google has been recently in the news for its triple-A-rated debt from Honda Motor Co. and Hyundai Corp. Previously, the company had restricted itself to the United States Treasuries only along with high-quality corporate bonds and other low-risk securities. The company has now sought hundreds of millions of dollars worth of auto loans from the aforesaid automakers. In the recent past, the Mountain View, California Company too did something similar.
US Treasuries bonds have been witnessing its lowest ever yields. Currently, the US government bond yields only 1.5956 percent of the invested amount. This means that Google is actually getting only 1.59 USD for every 100 USD it has invested in them. Actually that’s not all for Google. Situations for the high quality corporate bonds too are quite similar.
In fact, in a Barclays-compiled ABS index, the auto portion has been found to have returned 2.34% this year on deals having average maturity of just over two years. The figure has now compared it with the 0.30% for this year’s comparable Treasuries.
If the hypothesis behind the compendium-balance effect is taken into account then it must be kept in mind that the fed, through QE, actually removes available supply of safe-haven Treasuries in an artificial way. This in turn forces Google’s cash into fixed income assets in the private sector.
In fact, there are many things beyond the Fed too. It’s just not the Fed. Actually, the entire world now is running after fixed income securities. Government and high quality corporate bonds too are included in it in a default way. This rush into fixed income has in turn conceived the chase for yield. This chase pushes companies of every sector with cash to look in unusual places.
Let’s hope it works for the Google this time.