NEW YORK (Reuters) - The cost to insure debt holdings in electric carmaker Tesla Inc TSLA.O rose to its highest-ever level on Friday as the bond market reflected growing worries about a default, following the news that Chief Executive Elon Musk had been accused of fraud by federal regulators.

A newly installed car charger at a Tesla Super Charging station is shown in Carlsbad, California, U.S. September 14, 2018. REUTERS/Mike Blake

Tesla's 5-year credit default swap TSLA5YUSAX=MG hit its highest price ever on Friday, the day after the U.S. Securities and Exchange Commission said it was suing Musk and pushing for his ouster. The agency said he made a series of "false and misleading" tweets about potentially taking Tesla private last month.

Musk said on Thursday he had done nothing wrong. The company’s shares were down 12.3 percent at $269.72 on Friday afternoon.

It costs about $71,300 to insure $1 million of the electric carmaker's debt, plus an upfront cost of around 22.45 percent, which was also at an all-time high, representing a total of 29.58 percent of the face value of the company's 2025 junk bond 88160RAE1=RRPS, or around $295,000.

Doubts were evident elsewhere in the market. Trading volume of the 2025 junk bond 88160RAE1=RRP ballooned to $34 million on Thursday, versus $6 million on Wednesday, $1 million on Tuesday and $7 million on Monday, according to Reuters trading sources. Traders were quoting the junk bond at 87 cents early on Thursday morning. As of Friday, it was at 84 cents on the dollar.

The volume surge and price drop suggest that sellers, who may have initially bought the bond because they believed in the company’s fundamentals, capitulated on the price.

“A lot of times a burst in volume means the seller gave in,” said Tom Graff, portfolio manager at Brown Advisory.

Added Henry Peabody, portfolio manager at Eaton Vance: “The market financed a personality cult and the promise of growth. Those expectations now need to come out of the market.”

Tesla did not respond to a request for comment.

Default risks are rising because Tesla faces the looming possibility of a cash shortage. If Tesla fails to meet production targets in the second half of 2018, it will need a different source of cash to pay for the $1.3 billion in debt it has coming due by March 2019. Credit investors think that without Musk, Tesla would have a harder time tapping debt or equity markets.

“Elon Musk is Tesla,” said John McClain, portfolio manager at Diamond Hill. “This will limit their access to capital markets when they desperately need it.”