Treasury credit default swaps rise dramatically

| 16 July 2008 06:50

As you would expect, the market sees the U.S. Government as much less creditworthy. Note the rise in credit default swaps on U.S. Treasuries.

The question is: when will its foreign government supporters abandon a sinking ship.

This is from FT Alphaville, a great blog site by the FT:

Pace Jim Rogers.

Actual numbers: cost of protecting U.S. government debt up 2 basis points to 22bp at close Tuesday, exceeding March all-time-high of 20bp. HT Alea: “In normal times, the spread [full stop] is less than 2bp.”

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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3 Comments

  1. avatar Sobers says:
    16 July 2008 at 07:42

    How far off is the day when those nations/individuals with the serious money (ie the oil/commodity producers and manufacturing nations) refuse to buy govt debt from countries such as the USA and UK? Will we see a government go bankrupt? Unpaid policemen, soldiers, doctors etc? When the end is nigh it can come very fast. Who would pay taxes if they thought the public officials collecting it and enforcing the tax law had disappeared because they weren’t being paid? Or the police to arrest you for tax evasion? It could all fall down very quickly. It could be very significant that the Spanish govt recently pulled a bond issue due to lack of interest from buyers. Is this the sign of things to come for all the indebted Western nations?

  2. avatar Edward Harrison says:
    16 July 2008 at 08:29

    Sobers,

    You ask a good question. Confidence is a funny thing. It’s there one day and then it’s gone. If the US didn’t have the reserve currency it would be in Argentina’s position.

    A major power shift away from the likes of the US and the UK is underway. Will it happen peacefully? Usually it does not.

    Ed

  3. avatar John Creighton says:
    24 December 2008 at 13:55

    Is the promise to repay on US treasuries a promise to repay in US currency or a promise to repay in foreign currency? Also what are they insuring against? Are they insuring just against the default risk or are they insuring against a loss of value of the treasuries to a given currency or commodity? If the promise to repay for the treasuries is in US currency then can’t the fed just issue more treasuries to the federal reserve and then have the treasury department print more money to match the new debt?