According to Business Insider, the insurance cost against a default in the US reached its new high. The price was boosted by heated debates about raising the debt ceiling.
At present, the political standoff between Democrats and Republicans over raising the country's $31 trillion debt ceiling is becoming more intense.
Against the backdrop, the cost of insuring against a potential default hit its peak. Early in May, one-year US government credit default swaps were trading near 125 basis points, surpassing the previous level of 134 basis points logged at the end of April. Notably, last month, those derivatives turned out to be the most expensive since the global financial crisis in 2008.
The existing situation is forcing buyers of credit default swaps to search for insurance. The fact is that a borrower may fail to meet its debt-payment obligations. The US authorities have never announced a default on its debt. Nevertheless, lawmakers have not come to an agreement yet, which is only fueling concerns.
Not so long ago, Treasury Secretary Janet Yellen warned that by June 1, the county could “run out of money to pay its bills.” If the predictions come true, the US will face an “unprecedented economic crisis.”
Recently, the Republican-controlled House of Representatives passed a bill that offers to lift the debt ceiling in exchange for cutting government spending by 8% in 2024. However, the Senate controlled by the Democratic Party will hardly approve it. Analysts suppose that Democrats need a bill that will raise the debt ceiling without conditions.
