Friday, February 27, 2009

Taxpayers backs are breaking...hear the snap and

see the graph. It now costs more to insure Treas Bonds than some AAA corporate bonds.

And Barack Obama wants to lay $1 trillion more each year on the backs of taxpayers. There is a limit, even a limit to the creditworthiness of American Taxpayers.


In other news, the cost of buying a five-year credit default swap (CDS) to insure against the possible default of U.S. Treasury bonds reached 100 basis points for the first time yesterday. In English, the price of insuring $10,000,000 worth of Treasury bonds for five years now costs $100,000 –up from just $5,000 one year ago.

Your editors do not exactly know what the 20-fold jump in CDS prices means, but we are pretty sure we know what it does NOT mean. It does NOT mean that the U.S. government is becoming MORE credit-worthy.

As the nearby chart indicates, the price of insuring Treasury debt against default now costs more than the price of insuring the debt of almost any AA or A+ rated company in the country. In other words, the Treasury is not quite as AAA as it should be, according to the buyers of credit default swaps.