US one-year CDS hits 58 bps, gap over 5-year rate widens - Markit

Reuters

LONDON, Oct 4 (Reuters) - The cost of insuring one-year U.S.government bonds against default rose 7 basis points to 58 bpson Friday, hitting its highest level since August 2011,according to Markit.

The one-year CDS stands 17 basis points above the five-yearrate, the widest gap since July 2011. One-year CDS was just 6bps at the beginning of September.

With no clear progress in Washington's debt talks, financialmarkets were facing up to the possibility the deadlock couldextend to Oct. 17, when the government will effectively run outof cash.

Hitting the $16.7 trillion borrowing limit could lead to anunprecedented U.S. default which could wreak havoc in globalfinancial markets.

In normal circumstances, it is costlier to buy longer-termcredit protection and yields on longer-dated debt are usuallyhigher than on bonds maturing in the near future.

So the current curve inversion - considered a classic signof credit stress - reflects investors concern over a loomingdefault.

The yield on one-month Treasury bills stood at 0.1325percent, having hit its highest since November onThursday. The benchmark 10-year Treasury yield is slightlyhigher on the day at 2.6147 percent but has beenfalling in recent weeks.

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