Traders see rising default risk by United States

Mon Sep 15, 2008 4:59pm BST
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NEW YORK (Reuters) - Some traders on Monday saw a rising risk of default by the United States, as they bet an ailing financial sector is hurting the country's creditworthiness in the wake of Lehman Brothers' bankruptcy.

The perceived long-term default risk on the United States is greater than that of Germany, according to CMA DataVision, a credit data firm.

The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record wide on Monday, prompted by fears of the U.S. financial sector after Lehman Brothers went bankrupt, according to CMA DataVision.

Ten-year U.S. Treasury CDS last traded at 25 basis points, compared with 21.5 basis points on Friday, the credit data company said.

Five-year U.S. Treasury CDS were last at 22 basis points, There was no available quote on Friday, it said.

Despite worries about the United States' long-term credit outlook, many investors still showed confidence in U.S. government securities. They flocked into Treasury bills and longer-dated debt as safe-haven investments from global equities and commodities, analysts and traders said.

In late morning trade on Monday, benchmark 10-year Treasury notes were up 1-18/32 in price for a yield of 3.52 percent, the lowest yield in five months.

Meanwhile, the credit default swaps on other sovereign debt also grew on Monday.

Germany's 10-year credit default swap spread was 14 basis points, compared with 11.5 basis points Friday.  Continued...

 
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