Just for Fun – US Credit Default Swaps
As the title says, this one is just for fun: a chart of the price of CDS on 10 year US Treasuries from April 2008 through January 27. The CDS priced at 68 bps today, after having hit a record high of 75 bps in the first week of December. According to FT Alphaville, the same contract trades around 2 (!) bps points in normal times. I should mention that the concept of CDS on US sovereign debt is somewhat flawed in my opinion (Who buys these things? Do people really think their counterparty will be around to honor the CDS if the US defaults? Isn’t the market too thinly traded for prices to be meaningful?), but their development is still interesting to watch. The chart below includes annotations on a few major Wall Street and Main Street events.
If you’re interested in commentary, I recommend the recent pieces by Greg Ip, Dean Baker and Felix Salmon for further reading. And if you have any thoughts on how sensible or flawed the notion of CDS on US Treasuries is, post a comment and let us know!