(Bloomberg) — Microsoft Corp. is bigger than most countries’ whole stock markets and its bond rating would be the envy of many nations. Now a DoubleLine Capital portfolio manager is raising an uncomfortable — if theoretical — question about the software maker and its fortress balance sheet: Is it safer than the US government’s?
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It’s just a thought experiment — the asset manager doesn’t own the technology giant’s bonds — intended to highlight the diverging state of public and private finances.
But the analysis shines a light on the ascendancy of the corporate sector and the unprecedented juggernaut status of the US technology behemoths at a time of intense hand-wringing in Washington about the nation’s deteriorating fiscal picture. It also points to why it may make sense for investors to buy corporate debt now even as valuations for the sector are near historic highs.
In one corner is Microsoft, which boasts pristine credit scores from Moody’s Ratings and S&P Global Ratings on long-term debt totaling about $45 billion. The technology titan is expected to generate nearly $48 billion of cash in its fiscal 2025, and it produced enough of a key kind of earnings in 2024 to pay its annual interest expenses more than 50 times over, according to a paper this month from DoubleLine.
That gives Microsoft “ample capacity to service its debt, even in challenging economic conditions,” portfolio manager Mariya Entina wrote.
Compare that to the US, whose credit standing has been in decline. While Microsoft produces ample free cash flow, the federal government has been running huge and growing deficits, and servicing its roughly $36 trillion in total debt is becoming more costly. The country’s receipts-to-interest expense has declined to 5.2 times as of 2023, from 6.7 in 2018, according to the paper. The government does have the luxury of collecting taxes and printing dollars, but its “high debt burden and rising interest costs” make for a challenging mix, according to Entina.
“These growing fiscal challenges raise serious concerns about the creditworthiness of Uncle Sam,” she wrote. “In contrast, top-rated corporate credits – like Microsoft – are backed by ample cash-generating assets and significant corporate treasury reserves.”
Treasury investors have been stung by losses in recent years, of course. But for many, this kind of narrow financial analysis misses the point. US government bonds are backed by the full faith of the most powerful economy in the world, with the asset class rallying in times of stress thanks to its superior liquidity and the dollar’s privileged position in international commerce and foreign-exchange reserves.
