Debt markets grow more nervous about US default

Wednesday, 2 Oct 2013 | 6:05 AM ET
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The cost of insuring one-year U.S. government bonds against default rose 5 basis points to 35 bps on Wednesday, rising above the rate of insuring five-year debt for the first time in July 2011, according to data from Markit.

One-year U.S. credit default swaps were at their highest since August 2011. Five-year CDS fell 1 bp to 31 bps.

In normal circumstances, it is costlier to buy longer-term credit protection and yields on longer-dated debt are usually higher than on bonds maturing in the near future.

Credit default swaps on world's favorite 'safe haven': Cashin
Art Cashin, UBS, says the Republicans have boxed themselves into a very poor negotiating position, and we are in the bizarre position where credit default swaps on U.S. Treasurys are beginning to move up.

So the current curve inversion — considered a classic sign of credit stress — reflects investors concern over whether the United States would be able to raise the debt limit in coming weeks or risk a U.S. default that could roil global markets.

"It's down to the whole debt ceiling debate as it raises the possibility of the U.S. defaulting, missing a payment. It's unlikely but there is still that near-term risk," said Gavan Nolan, head of credit research at Markit.

President Barack Obama and congressional Republicans came no closer to ending a standoff on Tuesday that has forced the first government shutdown in 17 years and thrown hundreds of thousands of federal employees out of work.

—Check out the cost of insuring 5-year debt from countries across the world here.

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