Source — Twitter
The insurance premium against default by the US govt has not only crossed 1% for the first time ever this month but is not currently at 1.55%.
This is mostly noise because US government’s debt is in dollar and they can print it and avoid any default but at what cost to their economy. Can read more about CDS in detail below -
Surprisingly, not just 1 year CDS but the spread between US t-bills and 5 year CDS are also not at their normal levels.
We all know that US govt cant default but whats causing these abnormal moves in the CDS market and bond market in general is worth tracking. Something is off, but it is tough to pinpoint exactly what’s wrong.
would that realistically happen? ( althought the last 3 years have proven anything can happen but still this is too big)
Using financial sense, common sense or logic… it should not happen.
But with the polarised political environment and each dumb f**k trying to outdo the the other in grandstanding… the bond markets are rattled and crazily volatile.
Don’t think it will happen (personally), but luckily I have no money riding on it, so my opinion doesn’t count but the bond market is spooked, and it will damage long term credibility of the US market though.
Long held beliefs don’t crumble overnight (mostly), but are degraded slowly, little by little, until a certain inflection point when everything suddenly changes.
Donno when/if that will happen….