The cost of insuring U.S. Treasuries jumped by the most in three years before tomorrow’s presidential election on concern a failure to tackle the so-called fiscal cliff will tip the world’s largest economy into recession.
Credit-default swaps on U.S. government debt rose as much as seven basis points to 37, and cost 35 basis points at 11:30 a.m. in New York, according to data compiled by Bloomberg. That’s the biggest increase since at least 2009 when Bloomberg began tracking the data.
As Americans prepare to vote for President Barack Obama or Republican Mitt Romney, Group of 20 finance ministers pressed the U.S. to prevent the $600 billion in tax increases and government spending cuts set to occur unless Congress can reach a budget compromise by the end of the year. Europe, the subject of the group’s ire for the past three years, is enjoying some respite from its debt crisis after the European Central Bank pledged to buy bonds.
“Fundamentally, now the concerns are now shifting to the other side of the pond,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy. “It’s dawned on investors that this is going to be a very, very complicated and very risk strewn process where there are a number of extremely difficult pieces that need to fall into place.”
Swaps on the U.S. rose to the highest level in three weeks after trading at a more than six-month low of 29 basis points on Oct. 26.
A basis point on a credit-default swap protecting 10 million euros ($12.8 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net