A credit risk like Greece

The chart below highlights an unusual convergence: the 5-year CDS spread of the United States is now trading close that of Italy and Greece.

CDS spreads are a barometer of sovereign credit risk, and the recent spike in U.S. spreads reflects growing concerns over fiscal sustainability, political gridlock, and mounting debt levels. The fact that markets are now pricing U.S. credit risk on par with that of historically more fragile economies like Italy and Greece sends a sobering signal.

While we do not believe in an imminent U.S. default, the erosion of credibility and the weaponization of debt ceilings can have long-term consequences—both for U.S. assets and for the role of the dollar as a safe haven.

At ECP, while not being macro investors, we take note of the tectonic shifts questioning the US exceptionalism.