U.S. Treasuries' debt protection costs jump to record
Fri Jul 11, 2008 2:26pm EDT
NEW YORK (Reuters) - The cost to insure U.S. Treasury debt against default surged to a record on Friday on fears that the U.S. government may need to put capital into mortgage finance companies Fannie Mae and Freddie Mac, adding to government debt levels.
Investors are worried about increased Treasury debt supply after a report that the U.S. government may be considering a takeover of the country's two biggest mortgage finance companies.
The cost to insure Treasury debt with credit default swaps jumped to 16.5 basis points, or $16,500 per year for five years to insure $10 million in debt, from 8 basis points on Thursday, an analyst said.
Credit default swaps are used to buy protection against the likelihood of a borrower defaulting on its debt and to speculate on an issuer's credit quality. Protection costs rise when people become more concerned about an issuer's credit quality.
The 10-year Treasury note was trading 1-1/32 lower in price for a yield of 3.93 percent, up from 3.80 percent late on Thursday, while the 2-year note was 8/32 lower to yield 2.55 percent, up from 2.41 percent.
Debt protection costs on U.S. government debt are now higher than those for Germany, which trades at 9.5 basis points, and are trading at similar levels as Japan and the United Kingdom, which are around 16.5 basis points, the analyst said.
(Reporting by Karen Brettell; editing by Gary Crosse
“Depart from me, you accursed. For I was hungry and you gave me no food, thirsty and you gave me no drink, a stranger and you did not welcome me, naked and you did not clothe me, sick and in prison and you did not comfort me.' They answer, 'Lord, when was it that we saw you hungry or thirsty or a stranger or naked or sick or in prison, and did not care for you?' He answered, 'Truly I tell you, as you did not do it to one of the least of these, you did not do it for me.’”
Matthew 25:40-46