May 20, 2011 / 1:06 PM / 6 years ago

Cost to hedge default highest since January

NEW YORK (Reuters) - The cost to hedge against a U.S. government debt default rose on Friday to its highest level since January ahead of the government's sales of $99 billion in securities next week.

Worries persist over Washington's struggle to reach a deficit-cutting deal and to raise its $14.3 trillion legal borrowing limit, which was hit on Monday.

Anxiety over sovereign creditworthiness has been manifested in a rise in credit default swaps on the government debt of Japan and European countries as those regions face their own fiscal problems.

"It's a general disdain against these sovereign problems. Those problems are not going away," said Chris Ahrens, interest rate strategist at UBS in Stamford, Connecticut.

Despite the higher cost to hedge against a U.S. default, Ahrens expects the Treasury Department will have little trouble selling next week's supply of two-year, five-year and seven-year notes.

Earlier this week, the yield on benchmark 10-year Treasuries touched 3.09 percent, the lowest level since December. This signaled a strong appetite for U.S. debt despite concerns over United States' unwieldy debt load, analysts said.

In the sovereign credit default market, which is lightly traded, the five-year cost to protect a U.S. Treasury default was last quoted at 51.167 basis points, up from 48.401 basis points on Thursday, according to Markit.

The five-year Treasury CDS was at its highest since late January when it reached 51.443 basis points.

Reporting by Richard Leong, Editing by Chizu Nomiyama

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below