U.S. Government Worse Than Lehman?

Warning: Wonkish post ahead.

Apologies for the lack of posting.  Like the rest of you, my attention has strayed to broader market issues.

I came across a crazy statistic I want to share: going into March, 2007, according to this Marketwatch report, credit default swap protection for Lehman Brothers (LEH) debt cost $28,000 per $10 million of protection.  That’s 28 basis points, or bps (before expanding to 33bps amidst investor concerns on March 2, 2007).

Yesterday, Reuters reports that the cost of credit default swap protection on US 10-year Treasury Notes rose to a whopping 29.2 basis points:

The cost of insuring 10-year U.S. government debt against default rose to a record high on Wednesday as investors fretted over the feasibility of the government’s $700 billion plan to contain the financial crisis. Credit default swaps on 10-year Treasury debt expanded to 29.2 basis points — its widest ever — from 26.5 basis points on Tuesday, according to CMA, a specialised data provider.

Now I’m no expert on CDS, so if I have misread the data please set me straight, but it appears that investors currently assess the risk of default of US 10-year treasuries (as reflected in the CDS price) to be greater than that of Lehman Brothers only 18 months ago. Food for thought as the talking heads tell us the government should squander $700 billion of taxpayer funds on toxic mortgage assets.

DISCLOSURE: No positions, except a strong disagreement with the proposed Wall St. bailout handout.

Comments

[cjct:]

I don't mean to repeat an Ari Gold line, but "EVERYBODY STOP." I want everybody who doesn't understand credit derivatives, securitized products, the history of the RTC, and the mechanics of a reverse auction to cease and desist with these inane postings on how awful the plan is...Trust me your uniformed opinions are being fully expressed in all their idiocy by the multitude of morons (on both sides of the aisle) that are parading around Congress excited at the opportunity to make a name for themself during this crisis.

2008 Sep 25 05:08 AM

[cjct:]

Oh and no, you are not reading that right that USG debt has at any time been more costly to insure than that of Lehman Bros. I want you to stop and think for 10 seconds...the sovereign debt of the United States was at any time more risky than that of an I-Bank...really...even if the article said that, do you really believe everything you read...???

2008 Sep 25 05:10 AM