Monday, November 24, 2008

Political Risk in New Amerika

( You can make the argument that CDS on U.S. sovereign debt is silly because there is no counterparty risk when there is a printing press. However the printing press does have a real constraint ... what folks are willing to pay for its' product. Widening CDS spreads suggest that there is political risk in America and that the government may selectively default on its' debt. - AM)

NEW YORK, Nov 24 (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit record wide levels on Monday, prompted by worries about how the cost of rescuing banks and carmakers would affect U.S. creditworthiness, CMA DataVision said.
As the global financial crisis worsened in recent weeks, traders increased their bets on the bigger toll of the U.S. government's array of programs to help these ailing industries.
Ten-year U.S. Treasury CDS edged out to 49.8 basis points from 49.3 basis points at Friday's close, according to the credit data company.
Five-year Treasury CDS grew to 43.5 basis points versus 43.0 basis points late Friday, it said.
The risk premiums have nearly doubled from levels seen two months ago after the collapse of Lehman Brothers.
Prior to the financial crisis, default risk premiums on U.S. government debt had been running in the low-to-mid single digits.

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