The cost of insuring one-year U.S. government bonds against default rose 5 basis points to 35 basis point on Wednesday, above the rate of insuring five-year debt for the first time since 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 basis point to 31 basis points. Both rates remain very low, however.
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 investor 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.
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"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.