Connect to share and comment

U.S. one-year CDS hits 58 bps, gap over five-year rate widens: Markit

PlacardEnlarge
(Globalpost/GlobalPost)

LONDON (Reuters) - The cost of insuring one-year U.S. government bonds against default rose 7 basis points to 58 bps on Friday, hitting its highest level since August 2011, according to Markit.

The one-year CDS stands 17 basis points above the five-year rate, the widest gap since July 2011. One-year CDS was just 6 bps at the beginning of September.

With no clear progress in Washington's debt talks, financial markets were facing up to the possibility the deadlock could extend to October 17, when the government will effectively run out of cash.

Hitting the $16.7 trillion borrowing limit could lead to an unprecedented U.S. default which could wreak havoc in global financial markets.

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 a looming default.

The yield on one-month Treasury bills stood at 0.1325 percent, having hit its highest since November on Thursday. The benchmark 10-year Treasury yield is slightly higher on the day at 2.6147 percent but has been falling in recent weeks.

(Reporting by Sujata Rao and Natsuko Waki)

http://www.globalpost.com/dispatch/news/thomson-reuters/131004/us-one-year-cds-hits-58-bps-gap-over-five-year-rate-widens-mark