Debt Debacle

As the date the U.S. Treasury will hit the debt ceiling approaches, investors are increasingly taking note. The cost of a one-year U.S. sovereign credit-default swap that pays out should a default occur has risen from its typical 10bps to 140bps and is rising exponentially. The peaks in 2011 and 2013 were about 80bps. Moreover, the 3-month minus 1-month Treasury spread is 166bps, normally it’s close to zero.