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