Implied vol skew and credit-default swaps charts telling us the way?

by the trader

So, is the market finally starting to price in the “unthinkable”? Somebody out there is getting rather scared of the mess Washington is producing.

That “implied vol” skew is showing us the way, once again. Chart Macro story.

From Bloomberg; It costs more to insure U.S. Treasuries for one year than for five years for the first time, as investors anticipate that a failure to raise the debt ceiling will prompt rating companies to declare the nation in default.

The CHART OF THE DAY shows that one-year credit-default swaps spiked to a record 80 basis points today, according to BNP Paribas SA, up from 46 basis points on July 22. The contracts now exceed five-year swaps by 23 basis points.

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