- Traders worry that the US government will not be able to service its debt.
- Government one-year credit default swaps hit their highest level since 2008 last week, according to Bloomberg data.
- President Joe Biden has said a US debt default would be a “catastrophe.”
Insurance premiums if the U.S. fails to service its debt rose to their highest levels since last week’s financial crisis as traders worried Washington’s political stalemate could lead to debt defaults.
One-year government credit default swaps traded at 106 basis points on Saturday. financial times Report citing Bloomberg data.
A credit default swap, or CDS, is A type of insurance against borrowers who do not make scheduled payments about their debt.
One-year government CDS prices surge by 15 basis points in 2023, with traders fearing an imminent threat of a debt ceiling crisis, the FT reported.
The debt ceiling is the amount a government can borrow, set by Congress. The US reached her $31.4 trillion debt ceiling in January. in short, We may also run out of funds to pay our bills in July If lawmakers don’t vote to raise the cap, according to the Congressional Budget Office.
The White House and the Republican-led House cannot agree on how to resolve the potential crisis.
President Joe Biden said in January His administration believes that the inability of the United States to service its debt is a “disaster”, worse than “what has ever happened to the United States financially,” and that Congress is obliged to raise the debt ceiling. ing.
House Speaker Kevin McCarthy last week backed a bill that would raise the debt ceiling by $1.5 trillion in exchange for tighter spending controls, but he holds a very thin majority, and he’s out of his own party. faces considerable opposition to its plans.
According to the FT, the annual government CDS is even higher than in 2011.
That year saw a deadlock in Washington between the Obama administration and the Republican-controlled House of Representatives, leading Standard & Poor’s to downgrade the government’s credit rating for the first time in history.
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