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.
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.
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.