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The State of Finland and fast-food chain McDonald’s are now deemed more credit-worthy than the U.S. when measured by prices of CDS-derivatives (credit default swaps).
The insurance risk-premium for a 10-year U.S. treasury bond shifted on Friday up to 0.3% according to a broker in a Finnish bank. In practice this means that if an investor wishes to insure 10 million dollars worth of U.S. T-bonds against a government default the insurance will cost 30,000 dollars. Such an insurance for the same amount of investments on Finnish bonds cost on Friday only about half of that at 16,000 dollars. Even loans to McDonald’s would be cheaper to insure than U.S.-bonds, at 28,000 dollars per 10 million.
CDS-derivative prices are an indicator of investors’ views and mood, but as such they reveal nothing of the true financial state and wealth of their targets. Thus, while Finland’s and McDonald’s risk of bankruptcy is now smaller in investors’ opinion than that of the U.S. this does not mean that Finland and McDonald’s would necessarily be any wealthier and thus safer targets of investment than the U.S.
This being said, it is extremely rare for a fast-food chain’s corporate loan to be viewed as a safer investment than the bonds of the world’s most powerful country.
Would that then cause a snowball effect and cause China and Japan to call in their loans to us?