US Government debt default, bets surge

from Reuters

Rising U.S. government borrowing has a growing number of investors betting on a potential default by the Treasury down the line, according to credit default swaps data on Wednesday.

According to CMA DataVision, five-year U.S. CDS spreads stood at 82 basis points on Wednesday, having closed on Tuesday at a record 85.9 basis points. As a result, it currently costs $82,000 a year to protect $10 million of U.S. debt.

That is up tenfold from levels seen a year ago and even more from the negligible levels that were common before the credit crisis.

The CDS market is used to hedge against the possibility of sovereign and corporate defaults, and has played a controversial role in exacerbating the credit crisis.

Many believe a default by the U.S. Treasury is a physical impossibility, since all of the government's debts are denominated in its own currency and it could conceivably print more dollars to meet their obligations.