Et Tu, T-Bills?

The yield on Treasury bonds went negative yesterday for the first time in history. Investors are so desperate to avoid risk that they would rather a known small loss than lend to an unknown. Reuters has considerably more information on the state of public sector debt risks and they make it sound much worse than the passing reference in the Financial Times (Siew, Walden, “S&P Says Pressure Building on U.S. ‘AAA’ Rating,” 17 September 2008):

Pressure is building on the pristine triple-A rating of the United States following a federal bailout of American International Group Inc., the chairman of Standard & Poor’s sovereign ratings committee said Wednesday.

The cost of insuring 10-year U.S. Treasury debt against default rose Wednesday to a record high, a day after the government rescued insurer AIG with an $85-million loan. …

Ten-year credit default swaps, or CDS, on Treasury debt widened three basis points to 26 basis points, according to data from CMA DataVision. This means it costs $26,000 per year to insure $10-million of U.S. Treasury debt against default.

Five-year credit default swaps on Treasury debt were steady at 21.5 basis points. That compares to 9.8 basis points on German five-year CDS and 13.2 basis points on German 10-year CDS, CMA said.

A graph of various CDS rates would be a visual of the rise and fall of the great powers.

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