Spreads on U.S. government credit default swaps (CDS), market indicators of perceived sovereign default risk, edged lower on Monday as investors reacted to signs that the record-long federal government shutdown may soon end. According to S&P Global Market Intelligence data cited by Reuters, five-year CDS spreads fell to 37 basis points, down from 39 basis points on Friday, reaching their lowest level since February 2025. Shorter-term contracts, including one-year and six-month maturities, also eased slightly. The move reflected growing market optimism that Congress is nearing an agreement to restore government funding after more than forty days of partial closure. Analysts said the decline in CDS costs signaled improving confidence in the government’s ability to meet its obligations once the shutdown ends.
The current standoff, which began on October 1, is not linked to the debt-ceiling limit that typically drives sharp swings in U.S. sovereign CDS pricing. Instead, the shutdown stemmed from stalled budget negotiations, resulting in the suspension of some federal services and delays in the release of key economic data. While CDS spreads had initially widened when the closure began, markets have gradually pared back risk premiums as prospects for a resolution improved. The narrowing of CDS levels suggests that traders view the event as a temporary fiscal disruption rather than a systemic threat to U.S. creditworthiness. The movement also coincided with broader financial market gains, including higher U.S. Treasury yields and rising equity prices, as risk appetite strengthened at the start of the week.
In New York trading, optimism surrounding a potential funding deal supported a mild rotation away from defensive assets. Investors noted that reduced demand for sovereign protection instruments aligns with expectations of near-term fiscal normalization. While the CDS market remains small compared to Treasury securities, its movements are closely watched as an early gauge of global investor sentiment toward U.S. government debt. Monday’s data indicated that the market does not anticipate any material payment risk despite the political gridlock. The decline across all major maturities shows that participants are positioning for the resumption of normal government operations and the restoration of economic reporting that guides monetary policy decisions. Market observers said the shift underscores the resilience of U.S. credit markets even during extended periods of political uncertainty.
