US debt ceiling impasse pushes government credit default swaps to record high

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Article written by Davide Barbuscia, Thomson Reuters, Davide Barbuscia Covers Macro Investment, Trading Out Of New York, With A Focus On Fixed Income Markets. Previously Based In Dubai, Where He Was Reuters Chief Economics Correspondent For The Gulf Region, He Has Written On A Broad Range Of Topics Including Saudi Arabia S Efforts To Diversify Away Oil, Lebanon S Financial Crisis, As Well As Scoops On Corporate, Sovereign Debt Deals, via on 10 May 2023

Spreads on U.S. one-year credit default swaps (CDS) – market-based gauges of the risk of a default – widened to 172 basis points, an all-time high, according to S&P Global Market Intelligence data, up from a close of 163 on Tuesday.
The cost of insuring U.S. debt against default for five years stood at 73 basis points, up from 72 basis points on Tuesday, touching the highest level since 2009.
Due to the mechanics of a potential CDS payout, the probability of a default implied by the CDS could be lower than what current levels suggest, analysts said.
As of last week, the spread on one-year CDS implied a 3.9% probability that the U.S. would default, according to MSCI Research analysts.
“We found a lower market-implied default probability than in 2011 … despite much wider CDS spreads today,” they said.

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