An overview of credit default swaps Credit default swaps as an insurance policy As mentioned above, the US Government recently hit its debt ceiling of $31.4T— limiting the Treasury Department’s ability to issue new debt. While the government hasn’t ever defaulted on its debt and has enough cash reserves to continue operating until 4Q, 2023, there is an increased risk. As such, some of the startups who leverage Arc’s treasury management solution, Arc Gold, have asked about credit default swaps to hedge their principal risk. These startups aren’t alone, according to Axios, the demand for credit default swaps is on the rise with “U.S. CDS hitting an all-time high of 83 basis points”. In layman's terms: it now costs $83 to insure $10,000 of Treasury bonds against the risk of default, up from just $20 two months earlier. For context, the price today is higher than the previous record high of $82 set in July 2011, during that debt-ceiling crisis. Even though there is an increased risk of default today and demand for credit default swaps is on the rise, it’s important to note that U.S. Treasuries are considered one of the most risk-free assets in the financial world. Axios says “they're the bedrock on which almost everything else is constructed. The U.S. can always print the money it needs to repay its debts.” We tend to agree.