In the Financial Times, Kate Duguid, Lauren Fedor, and Colby Smith note that investors are getting worried about the potential pitfalls of the coming debt ceiling battle in Washington, D.C.. They write:
The cost of buying insurance against a US government default has shot to its highest level in more than a decade, in an early sign of market concerns about the political impasse in Washington over the debt ceiling.
Amid a stalemate between the White House and congressional Republicans on raising the federal borrowing limit, the price of five-year credit default swaps — the most widely traded form of debt insurance — reached its highest since 2012 this month.
A default on US federal debt — an outcome US Treasury secretary Janet Yellen has warned would lead to “catastrophe” — is still viewed as unlikely.
But investors are moving to protect themselves against the possibility, which could theoretically come as soon as June, or to profit from a protracted game of chicken that upends markets.
“It seems like you are starting to see the beginnings of concern about a default happening,” said Jay Barry, co-head of interest rate strategy at JPMorgan. “We think this is going to be a pretty protracted debt ceiling fight.”
Read more here.