The cost to protect against a China debt default just spiked the most in 6 years

The cost to protect against a China debt default just spiked the most in 6 years

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Reuters / Lucas Jackson

  • Chinese credit-default swaps jumped the most in more than six years Monday after the yuan slid to a low against the US dollar. The move comes after President Trump threatened more tariffs on virtually all Chinese imports to the US.
  • Trump has called out China for letting the yuan lose value, calling it currency manipulation.
  • Credit-default swaps increasing in price mean that investors are worried that China won't be able to repay its debt and are trying to insure against losses.
  • Read more on Markets Insider.

The cost to insure investment in Chinese debt saw its biggest single-day in more than six years on Monday.

Five-year credit-default swaps on China sovereign debt exposure jumped as much as nine basis points, reaching more than 55 basis points. That marked the biggest intraday increase since June 2013, according to Bloomberg data.

The move came after China let its currency, the yuan, slide to its lowest value against the US dollar in a over a decade. President Trump tweeted that China is manipulating its currency.

China's currency-weakening efforts are just the latest escalation in a trade war that saw President Trump threaten last week a 10% tariff on the remaining $300 billion of Chinese imports to the US. Since the threat, markets have sold off sharply. China has also ceased buying US agriculture products in an escalating trade war.


The boost in cost of protecting against Chinese debt through a CDS means that investors now see the debt as a riskier bet. When CDS go up in price, it means that it's more likely that the debtor - China, in this case - will be unable to repay its debt.

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