Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284058 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. WP 2023-17
Version Description: 
Revised: May 17, 2023
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
As the debt ceiling episode unfolds, we highlight a sharp increase in activity across the U.S. credit default swaps (CDS) market and infer the likelihood of a U.S. default from these market prices. Beginning in January 2023, we document a significant increase in U.S. CDS trading activity and positions, accompanied by a spike in CDS premiums. We estimate an increase in the market-implied default probability from about 0.2-0.3% in 2022, to approximately 1% in 2023. Yet, this default probability currently remains lower than what we find for the periods leading up to the 2011 and 2013 debt ceiling episodes, due in part to the cheapening of deliverable Treasury collateral to CDS contracts.
Subjects: 
U.S. default
U.S. CDS
default probabilities
sovereign CDS
debt ceiling
JEL: 
G10
G12
G18
G28
E32
E43
E44
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
761.55 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.