Debt ceiling fears push the cost of insuring against a US government default to highest level since 2008 crash
Traders are fretting that the US government will fail to repay its debts.
One-year government credit default swaps hit their highest price since 2008 last week, according to Bloomberg data.
President Joe Biden has said that a US default would be "a calamity."
The cost of insurance against the US failing to repay its debts rose to its highest level since the financial crisis last week, as traders worried that political deadlock in Washington might lead to a default.
One-year government credit default swaps traded at 106 basis points Saturday – the most expensive they've been since 2008, according to a Financial Times report that cited Bloomberg data.
Credit default swaps – or CDSs – are a form of insurance against a borrower not making scheduled payments on their debt.
The price of one-year government CDSs has spiked 15 basis points in 2023 with traders spooked by the looming threat of a debt-ceiling crisis, the FT reported.
The debt ceiling is a limit on how much the government can borrow, set by Congress. The US hit its $31.4 trillion debt limit in January – and that means it could run out of money to pay its bills as soon as July if lawmakers don't vote to raise the ceiling, according to the Congressional Budget Office.
The White House and the Republican-led House of Representatives can't agree on how to resolve the potential crisis.
President Joe Biden said in January that the US failing to repay its debts would be "a calamity," worse than "anything that's ever happened financially in the United States" – and his administration believes that Congress is obligated to raise the debt limit.
House Speaker Kevin McCarthy backed a bill that would raise the debt ceiling by $1.5 trillion in exchange for tighter spending controls last week, but he only holds a razor-thin majority and faces considerable opposition to the plan from within his own party.
One-year government CDSs are now even more expensive than they were in 2011, per the FT.
That year, a deadlock in Washington between the Obama administration and the Republican-controlled House led to Standard & Poor's downgrading the government's credit rating for the first time in history.
Read more: The US could be 4 months away from a potentially disastrous debt-ceiling breach, but nobody's negotiating over how to fix it
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