RiskTrade

Government Risk Rises: Credit Markets Face Structural Collapse

The reason some traders have bought protection on the US Sovereign is not because they expect the US to default but because they think things could get worse and spreads will widen thereby allowing them to close their position at wider spread levels. If the U.S were to run in to trouble with its budget deficit we would more likely see a downgrade rather then an outright default/ or debt restructure. Downgrades are not credit events and so the CDS is unlikely to be triggered.
Honestly, if the US were to default the rest of the world would be in far more problems as they are dependent upon u.s consumers, and investors.

Yields on treasuries will no doubt rise, and the u.s dollar will at some point fall, and markets will take a while to recover but we are not in danger of a systemic collapse.