The cost of insuring against US debt soared this week as rating agency Standard & Poor’s downgraded its outlook on the country’s credit rating, but hedge funds were well positioned for the announcement after selling $14bn in US bonds in the first two weeks of April.

The price of five-year credit default swaps on US debt rose 16% on Monday (see chart), and 35% since April 6, after the rating agency's US debt warning and fears that the US government is not doing enough to address the nation's budget deficit.