At the same time, US sovereign 5 year CDS surged 15 bps yesterday to 86 bps. To put that in perspective…..it’s where Citigroup CDS was trading exactly one year ago. Remarkably, Macro Man could only find two other countries with double-digit CDS ratings: Japan (58), Germany (59), and France (69). Was it really only a decade or so ago that Japan’s loss of a AAA rating amidst massive borrowing made waves? Now markets are essentially saying that the Japanese government (facing a massive demographic challenge) is the best creditor in the world.
CDS = Credit Default Protection.
To be honest, I don’t really understand this. As I understand it, the CDS contracts don’t cover inflation. Do people really believe that the US will default rather then inflate? I suppose it could happen.