LONDON The cost of insuring one-year U.S. government bonds against default rose 5 basis points to 35 bps on Wednesday, rising above the rate of insuring five-year debt for the first time in July 2011, according to data from Markit.
One-year U.S. credit default swaps were at their highest since August 2011. Five-year CDS fell 1 bp to 31 bps.
In normal circumstances, it is costlier to buy longer-term credit protection and yields on longer-dated debt are usually higher than on bonds maturing in the near future.
So the current curve inversion - considered a classic sign of credit stress - reflects investors concern over whether the United States would be able to raise the debt limit in coming weeks or risk a U.S. default that could roil global markets.
"It's down to the whole debt ceiling debate as it raises the possibility of the U.S. defaulting, missing a payment. It's unlikely but there is still that near-term risk," said Gavan Nolan, head of credit research at Markit.
President Barack Obama and congressional Republicans came no closer to ending a standoff on Tuesday that has forced the first government shutdown in 17 years and thrown hundreds of thousands of federal employees out of work.
(Reporting by Sujata Rao and Natsuko Waki)