This whole debt ceiling fiasco has brought CDS back into the main stream news again. Last time that happened was – well – you remember. My quote in this story was in response to the reporters request to “explain how credit default swaps work for the average person”. That aside, it should go without saying that CDS spreads of 63 bps on US debt are still pretty low. When other countries or companies are risking a technical default or downgrades spreads routinely go into the hundreds and sometimes (Greece) thousands. So whatever the political predictions are, the traders still aren’t terribly worried (yet).
Kevin McPartland, director of fixed income research at the TABB Group, a market research and advisory firm, says, “the current price is an indication of the market’s expectation that U.S. debt will experience some kind of ‘credit event’—such as a downgrade.”