One way to judge how worried the market is about Washington's poisonous politics is to look at the cost of insuring U.S. Treasuries. If investors are becoming more concerned about a potential default, then that cost will rise. You can see this cost through credit default swap (CDS), which are derivatives used to protect against bond default. As you might expect, as the August 2nd deadline for extended the debt ceiling looms, spreads on CDS for Treasuries have been widening.
Here's the chart, from data provided by Markit through Friday's last indicative quote:
This chart warrants some explanation. First, the CDS referenced by these two curves represent to periods of time for which U.S. Treasuries are insured. The 1-year line (red) represents CDS insuring Treasuries for a year, while the 5-year line (blue) represents CDS insuring Treasuries for five years.
The cost of that insurance at a given point in time is reflected by the spreads shown. Think of the spread as basis points. For example, as of today, the spread for 1-year U.S. Treasury CDS was 75 basis points. In other words, to insure €10 million in Treasuries, would cost €75,000.
The spread is also an annual cost. So for the 5-year line, the 60-point spread represents a cost of €60,000 per year to insure €10 million in Treasuries.