U.S. CDS costs drop as debt deal nears

Mon Aug 1, 2011 9:56am EDT

Related Topics

  
 * Five-year US CDS costs drop 10 bps to 50 bps
 * One-year swaps plunge 30 bps to 45 bps
 * Credit curve no longer inverted, near-term risks ebb
 (Adds details, changes dateline, previous LONDON)
 NEW YORK, Aug 1 (Reuters) - The cost of insuring U.S. debt
with credit default swaps fell on Monday, with short-dated
swaps dropping the most, as investors regained confidence the
U.S. would avoid a near-term debt default.
 Five-year credit default swaps (CDS) on U.S. government
debt fell to the lowest since July 11 at 50 basis points, down
10 bps on the day, according to data provider Markit.
 Thinly traded one-year swap costs, meanwhile, dropped 30
basis points to 45 basis points, their lowest since July 5. The
move reversed the curve inversion that held for most of July.
 The short-term debt insurance costs rose above those of the
more liquid 5-year swaps in early July as investors fretted a
near term default was more likely.
 One-year debt costs reached a record 82 basis points on
Thursday. That would mean it cost $82,000 to insure $10 million
in Treasuries.
 The drop in CDS costs on Monday reflected increasing
confidence that lawmakers will to pass a deal, which raises the
$14.3 trillion debt ceiling and cuts about $2.4 trillion from
the deficit over the next decade. For more, see [ID:nN1E76U0F]
 (Reporting by Karen Brettell and William James; Editing by
Theodore d'Afflisio)


FILED UNDER: