Bets Offering 2,400% Payout on US Default Lure Growing Crowd
- Volumes, spreads on US CDS are rising amid debt-cap showdown
- Deeply discounted long bonds could supercharge swap payouts
The US Capitol in Washington, DC.
Photographer: Al Drago/BloombergThis article is for subscribers only.
In what is a traditionally moribund corner of Wall Street, speculators are piling into a bet that once seemed unthinkable: that the US government will default on its debts.
With the Treasury Department inching ever closer to running out of cash — most estimates give it another few months — trading in the derivatives, known as credit-default swaps, is growing. The amount of money tied to the contracts, which will reward investors if the US misses any payments, has increased roughly eight-fold since the start of the year.