The net notional amount of derivatives used to hedge or speculate against a default on U.S. government debt rose 12% in late January, according to Depository Trust & Clearing Corp. figures.
The increase suggests investors are becoming more nervous about the quality of U.S. debt. It also threatens to cast a pall over the notion that Treasuries are risk-free assets investors should run to for haven from other instruments.
The net notional of credit default swaps bought and sold on U.S. debt rose from $2.67 billion to just over $3 billion between Jan. 14 and Jan. 21, according to DTCC data updated Tuesday. The gross notional rose from $16.1 billion to $17.2 billion, or 6.8%.
When it comes to credit default swaps—more commonly known as CDS—gross notional refers to the amount of protection bought or sold in the aggregate. Net notional values are a more precise reflection of the amount of money that would change hands between net sellers of CDS protection and net buyers in a default.
Meanwhile, the cost of CDS on U.S. debt has risen 25% over the past month, to around 0.50 percentage point from 0.40 percentage point in early January, according to data provider Markit. A price of 0.50 percentage point translates to €50,000 (about $70,000) a year to insure €10 million of U.S. sovereign debt for five years, meaning the cost has risen by €10,000 a year over that period. (more)
No comments:
Post a Comment