Costs of insuring short-term US bonds rises on debt ceiling worry
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.
(Read more: Dollar shorts get louder as shutdown continues)
"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.
Just before the U.S. open, the benchmark 10-year Treasury yield was slightly lower on the day at 2.6391 percent.
The market impact from a stalemate over the federal budget was mainly seen at the short-end of the maturity curve after Tuesday's one-month bill sale got the highest rate since November.
S&P futures were pointing to a lower open on Wall Street, supporting Treasury prices. (Click here for the latest market action.)