Credit Markets Signal Bigger Fear Of Treasury Default Than In 2011

Earlier in the week we noted the spike in the cost of protecting against a technical default on US Treasuries. While well below “record” wides of 2011, a very interesting event has occurred. The cost of 1Y protection has surged higher than the 5Y protection – something we have only seen in the summer of 2011. However, this time it’s different as the inversion is even greater than in 2011 – although not the most liquid instrument in the world – implying a greater chance (albeit a small probability) of a postponed payment in US Treasuries. As we noted previously, there is a way to trade this away from CDS-land.

 

USA CDS curve inverted more than in 2011…

 

And the 1m1y Treasury bills flattener is working in our direction

Charts: Bloomberg

    



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