Companies Prepare for U.S. Downgrade, Default

Corporate treasurers are preparing for a downgrade of and potential default on U.S. Treasuries by shortening the average maturity of their holdings and moving more money into insured bank accounts and money-market mutual funds.

While companies aren’t selling Treasuries, they are reinvesting cash from maturing securities in the shortest available instruments, consulting firm Treasury Strategies Inc. said in an e-mailed statement today, citing discussions with clients.

“Corporate treasurers are preparing for the unthinkable,” Anthony Carfang, a partner in the Chicago-based firm, said in the statement.

Treasury Secretary Timothy F. Geithner has repeatedly said the government’s authority to borrow will run out on Aug. 2 unless Congress raises the debt ceiling. Republicans and Democrats have been unable to agree on an increase in the debt cap or budget cuts, leading to concerns that the U.S. will lose its AAA credit rating.

Companies consider a downgrade “highly likely” and believe a default on bond payments “a much lower probability,” Treasury Strategies said.

http://www.bloomberg.com/news/2011-...ng-for-unthinkable-u-s-downgrade-default.html