Wednesday, May 17, 2023

USA Default Warning

 Very quick post.

The US is inching towards default because of the debt limit situation, and markets are no longer ignoring the risk.  

Take a look at the 1 year Credit Default Swaps (CDS) for US sovereign debt (ie Treasuries).  Prices have soared to 150 bp, up  15-fold since early 2023. 

USA 1-Year Sovereign Credit Default Swaps

By comparison, 1 year CDS for Germany are at 3 bp,  Japan is at 5 bp and the UK is at 8 bp. Worried? You bet - literally!

PS President Biden declared that "the US will not default". Take a minute to think this through: if the world's largest debtor and issuer of the world's reserve currency is reduced to such statements... the game may not be over, but it is past its half-time, for sure.


  1. 150bp is 'high' but it may still indicate a very low probability event. My bet is US will not default, and I think the market agrees with this assessment. Btw, is there any difference between 3bp, 5bp, and 8bp? I don't see any!

    1. By H. For the US 150 bp is incredibly high. As for the rest, the difference is mostly due to slightly different interest rates for each country’s underlying bonds.

      Will the US default? I don’t know, but even having to ask the question is very bad.

  2. You could say that this is a great shame to the U.S. On the other hand, you could also argue that the presence of this story is a testament to the greatness of the U.S. The U.S. does not live up to its ideals... perhaps increasingly less so... but it still believes that individuals matter... maybe not as much as it says it believes... but it believes... and in so doing,.... makes it just a little bit true.