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Traders work on the New York Stock Exchange (NYSE) on the opening bell on May 27, 2025 in New York.
Timofey A. Clair | AFP | Gets the image
Investors are nervous that the US government can fight for paying its debt – and they break the insurance in case the default.
According to LSEG, the cost of US government debt insurance is constantly increasing and approaching the highest level.
Are distributed either awards As of Wednesday, on Wednesday, on Wednesday, 16 basic points were noted for 52-year-old lending swaps for 52 bases from 16 basic points, LSEG data showed.
Credit default exchanges are similar to insurance for investors. Buyers pay for the protection fee if the borrower – in this case the US government – cannot repay the debt. If the cost of the US debt insurance is increasing, it is a sign that investors are nervous.
The distribution of CDs with a 5-year tenor was almost 50 basic points compared to approximately 30 basic points at the beginning of the year. In the CDS contract, the buyer pays a recurrent premium known as the seller’s distribution. If the borrower, in this case, the US government by its debt, the seller must compensate the buyer.
CD prices reflect how risky the borrower is and is used to protect against the signs of financial problems, not just a full default, said Rong Ren Gu, a portfolio manager in a fixed earnings team.
A recent surge of demand for contracts for the Diszk Camp is “heding against political risk, not insolvency,” Ga said, emphasizing greater anxiety against US fiscal policy and “political dysfunction” rather than an opinion on the market that the government is not fulfilling its obligations.
Investors pricing to tighten problems around unresolved debt, several industry observers said.
“The default loans have become popular again because the debt remains unresolved,” said Freddie Wong, the head of the Asia -Tzakhakani region Invesco, emphasizing that the US Treasury reached the Law for Charter’s debt in January 2025.
The Congress reported in March that the Treasury had already reached the current debt limit of 36.1 trillion. Dollars and did not have the opportunity to borrow “except for the replacement of debt.”
Minister Finance Scott Import said earlier this month The fact that its department is headed by federal tax revenues collected approximately April 15 to come up with a more accurate forecast for the so-called “X-Date”, citing when the US government exhausts its debt.
Morningstar data shows that spikes in CDS are extended to US government debt, usually agreed with periods of increased hassle around the government’s debt limit, especially in 2011, 2013 and in 2023.
Wong noted that there are several months before the US reaches the X-dates.
The US House has accepted a major tax reduction package, which reportedly saw the ceiling of the debt is collected at 4 trillion dollars, Prior to the approval of the Senate.
In a letter on May 9, inflammatory called on Congress leaders To extend the debt ceiling until July, before Congress will go down for an annual break to avoid an economic catastrophe, but warned “significant uncertainty” into the exact date.
“There is still enough time for the Senate to adopt its version of the bill by the end of July to avoid technical default in the US Treasury,” Wong added.
During the debt crisis in 2023 the US Congress accepted the bill that rejected the debt ceiling Just a few days before the US government entered the technical default.
In the past, the United States was approaching default, but in each case Congress acted at the last minute to raise or suspend the ceiling.
Fiscal reckoning
Production prices for CD is probably a “short-lived” reaction, while investors are waiting for a new budget deal to increase the debt limit. According to the observers of the industry, this is hardly a sign of the approaching financial crisis.
During the 2008 financial crisis, the institutions and investors actively traded CDS associated with mortgage securities, many of which were filled with high -risk loans. When the default default flew off, these securities fell at the cost, resulting in great obligations to pay CDS.
However, the consequences for increasing demand for sovereign CE -Disky are very different compared to the demand for corporate compact, which was in 2008, when investors made the actual call for the default at corporations, said Spencer Hakmin, the founder of Tolou Capital Management.
“It seems that traders believe that the CDS provides a speculative tool for the state debt crisis, which I find extremely unlikely,” said Ed Jedeni, President Yardeni Research, who added that the United States will always prefer “interest on its debt.
“The US government will not default on its debt. Fear that it can do is not justified,” he said CNBC.
Moody’s earlier this month downgraded sovereign US credit rating to AA1 from AAA, referring to the deterioration of the government in financial health.
If the Senate will bring the bill in a timely manner, the massive increase in the ceiling will push the Treasury by returning the deficit to the US, Wong warned.
