U.S. default costs fall on debt deal hopes

Reuters

LONDON, Oct 11 (Reuters) - The cost of insuring against aU.S. debt default dipped on Friday as prospects politicians inWashington will reach a deal to lift the country's debt ceilinggathered pace.

Five-year credit default swaps tightened 10 basis points onthe day to 30 bps while one-year CDS was 7 bps narrower at 60bps, according to data provider Markit.

Still, the fact that one-year CDS was twice the rate of thefive-year contract reflected lingering doubts that a deal toraise the country's borrowing limit will be reached by Oct. 17when the government will effectively run out of cash.

In normal circumstances, it is costlier to buy longer-termcredit protection. The current curve inversion - considered aclassic sign of credit stress - reflects investors' concern overa looming default.

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