Credit Default Swaps Surge Amid U.S. Debt Ceiling Uncertainty

The cost of insuring U.S. government debt has sharply risen as investors grow anxious over the unresolved debt ceiling, prompting renewed interest in credit default swaps (CDS).

One-year CDS spreads hit 52 basis points this week, up from 16 at the start of the year, according to LSEG data. Five-year contracts also rose near 50 basis points. The spike reflects growing unease over fiscal gridlock, not an expectation of actual default.

“CDS demand is a hedge against political risk, not insolvency,” said Rong Ren Goh of Eastspring Investments.

The Treasury hit its $36.1 trillion borrowing cap in January. While the House has passed a bill to raise the limit by $4 trillion, Senate approval remains pending. Treasury Secretary Scott Bessent urged action by July to avoid a default.

Analysts say the CDS surge is likely short-lived, tied to temporary political uncertainty. “The U.S. won’t default,” said Ed Yardeni of Yardeni Research. “But market nerves are real.”

Moody’s downgraded the U.S. credit rating earlier this month, citing worsening fiscal health.