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View Full Version : US Default CDS - to the guy who wanted to buy one shortly ago...


Bash409
March 11th 09, 03:14 AM
.... turns out to have been one of the best bets of recent months :

U.S. sovereign-credit spreads rise sevenfold in year

http://www.marke****ch.com/news/story/Cost-buy-protection-against-
US/story.aspx?guid={8A08067B-E9C2-4B7F-A235-DAEFE3EA08C4}

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and from Krugman :
http://krugman.blogs.nytimes.com/2009/03/10/credit-protection-madness/

Credit protection madness

Marke****ch reports:

The cost of buying protection against the risk that the United States
will default on its mounting debt has surged in the past months,
outpacing the rise in corporate-credit costs, now that the government has
absorbed more private-sector debt.

The spreads on credit-default swaps for U.S. government debt jumped
to 97 basis points Tuesday, nearly seven times higher than a year ago and
60% higher than the end of last year, to a level roughly in line with
those of France, according to data supplied by Markit. The spreads also
hit a record last week.

Has the risk of a US government default risen? Probably. Nonetheless, the
people buying these contracts are crazy. A world in which the US
government defaults would be a world in chaos; how likely is it that
these contracts would be honored?

Nassim Taleb has a line about CDS in general, which certainly applies
here:

It would be like buying insurance on the Titanic from someone on the
Titanic.