U.S. Sovereign Credit-Default Swaps Fall as Trading Volumes Jump

Credit-default swaps on U.S. Treasuries fell as trading of contracts insuring against losses on the nation’s debt jumped.

Five-year swaps fell 3 basis points to 30 basis points, after reaching a five-month high of 34 on Sept. 30, according to data compiled by Bloomberg. The contracts were the 15th most traded of 1,000 entities tracked by the Depository Trust & Clearing Corp. in the week through Sept. 27, up from 147th the previous period.

Investors are speculating that lawmakers will agree to raise the nation’s $16.7 trillion debt limit by Oct. 17 to avoid default, which would trigger payouts on debt insurance. The U.S. is taking extraordinary measures to avoid breaching the debt ceiling after a standoff between Congressional leaders triggered the first government shutdown in 17 years.

There were 56 trades covering a gross $2.1 billion of Treasuries in the week through Sept. 27, compared with 10 trades covering $290 million the previous week, according to DTCC, which runs a central registry for the market.

The amount of Treasuries protected also increased last week, with the 8 percent rise the biggest since June 2011, DTCC data show. There are now 886 contracts covering a net $3.4 billion of Treasuries outstanding, the most since March and up from an almost three-year low of $3.1 billion on Sept. 20.

That compares with $13.1 billion of protection on German bunds and $16.9 billion on Italy’s debt.

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