This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Equity and Credit Protection Slightly Split

Stocks in this article: VXX

NEW YORK ( TheStreet) -- Markets for protection in both equities and credit are telling slightly different stories about the debt-ceiling debate, but both predict an actual default is unlikely.

Equity markets are not seeing robust demand for downside protection, even though failure to negotiate raising the debt ceiling would lead to a steep selloff in equities.

Credit protection, known as credit-default swaps, on the other hand, are at highs not seen since August 2011.

In times of fear, equity investors buy put options as a form of downside protection on their assets in case prices drop rapidly.

In credit markets, investors protect their assets from potential default risk by purchasing CDSs to hedge returns on principal if a default does occur.

Prices on Treasury CDS over the past week have jumped from 5 basis points to nearly 40bps. That looks like a large percentage jump, and it is considering prices haven't been this expensive since the last debt-ceiling fracas occurred, when Standard and Poor's downgraded U.S. government debt.

Although CDS prices have spiked, prices remain low relative to other countries with higher default probabilities such as Portugal or Greece.

That essentially means that investors are bidding up the price of U.S. CDSs, but not to levels that an actual default is expected.

A confirmation that fears about the debt ceiling have not gotten out of hand, the iPath S&P 500 VIX ST Futures ETN (VXX) remains at yearly lows, as seen in the chart below.

Equity market volatility is usually expected as the days move closer to a government shutdown.

Now, however, we expect political wrangling and a last-second resolution to the problem.

The U.S. government is as polarized as it has ever been in recent decades, leading to even the simplest policy debates splitting factions down the middle.

The same warning song has been sung too many times in the case of U.S. debt default, and markets are pricing in business as usual until it isn't.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs