Are Your U.S. Treasury Bonds Safe?

President Barack Obama has recently unveiled bold new plans for government programs and tax breaks to try to boost the economy. These initiatives have no price tag yet, but they will require significant spending.

You can debate whether new highway and bridge projects and sundry tax breaks will help the economy. That's a political question. But as the U.S. government piles borrowing atop more borrowing, it begs a financial question that is not utterly ridiculous: Are your U.S. Treasury bonds safe?

On its face, the probability of the U.S. defaulting on its spiraling debts seems highly unlikely. But that's not what the markets think. The price of insurance against such a default—using derivatives known as credit default swaps—has jumped by more than 50% in the private market in recent months. According to CMA DataVision in London, a specialist in these contracts, it will now cost you 0.34% of the principal per year to buy default insurance on U.S. government bonds. If you held $1 million in Treasurys, insuring against default would cost you $3,400 for the year. A few months back, insuring those bonds would've cost less than $2,000. (more)