Saturday, March 14, 2009

Bad Omen for U. S. Government Debt


The cost of buying a credit default sway (CDS) on U. S. government debt is soaring. The spread has widened from 14 basis points a year ago to 97 basis points now. To put this in perspective, the cost to buy insurance against the possible default of U.S. government bonds (sovereign debt) has risen to $97,000 per $1,000,000 of debt. Yikes. This makes the cost of buying insurance roughly equivalent to that of France.

The potential for a downgrade of U. S. sovereign debt is listed as considerable by Moody's. Moody's describes the current situation for the debt as:
Resilient Aaa, whose ratings are being tested but, in our view, display sufficient capacity to grow out of their debt and repair the damage.

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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.