U.S. government shutdown causes economic data to break, U.S. bond traders use gaming market to judge the duration of shutdown

In the absence of economic data to guide interest rate expectations, Treasury traders are turning to the betting market for signals on the duration of the U.S. government shutdown.
The government shutdown entered its sixth day on Monday, and unlike in the past, Trump's threat to fire federal employees further complicated the negotiations. In research reports sent to clients, strategists at companies suchas Goldman Sachsand HSBC pointed out that the gaming market shows a high probability of a government shutdown exceeding 10 days.
"Investors are concerned that this government shutdown may last for a long time," BMO Capital Markets strategists Ian Lyngen and Vail Hartman wrote in a report."Whether it will last for a week or two, or four to five weeks remains unknown. We expect the news cycle to focus on the gradual progress of the government's restart of negotiations, which will intermittently trigger expectations of a government restart."
U.S. Treasury yields of all maturities rose on Monday, following the rise in yields on most European and Asian sovereign bonds amid heightened fiscal concerns. Bitcoin, gold and silver prices rose as investors viewed these assets as safe-haven vehicles rather than U.S. Treasuries, which typically benefited from safe-haven trading during government shutdowns.
Despite the missing data, swaps linked to decisions at the Fed's policy meeting showed that traders still believe there is an 88% chance that the Fed will cut interest rates this month.
On Monday, betting data from online gambling platform Polymarket showed that the market predicts that the probability of the government shutdown lasting for 10 to 29 days is 66%, and the probability of it lasting for more than 30 days is 29%. The probability that the shutdown will end before this Thursday (i.e., last less than 10 days) is only 5%. The longest government shutdown to date occurred at the end of 2018, totaling 34 days.
The Congressional Budget Office estimates that approximately 750,000 employees will be forced to take unpaid leave, resulting in approximately $400 million in daily payroll cuts.
Michael Feroli, chief economistat JPMorgan Chase,and colleagues pointed out in the report that "the administration's threat to fire employees on unpaid leave could create a greater consumer drag than usual."
U.S. Treasury yields posted their biggest weekly decline in a month last week as the government shutdown delayed the release of a series of closely watched jobs data.
Yields on U.S. bonds with 10-year and older rose more than 3 basis points on Monday, with the yield on the benchmark 10-year Treasury note at about 4.15%. The sell-off in global bond markets was led by Japan. Takashi, a conservative who previously advocated fiscal stimulus, was unexpectedly elected as the leader of the Liberal Democratic Party and is set to become Japan's next prime minister. The resignation of French Prime Minister Sebastian Le Corney plunged the country into a new round of political crisis, and French government bond yields also soared.
Simon White, macro strategist, said: "Term premiums are driving global bond yields higher, even though most central banks are in rate cut mode. There are signs that the market believes that the risk that fiscal deficits increasingly dominate monetary policy in many countries is rising."
Given that the government shutdown is expected to delay the release of more economic data this week, investors will be closely watching the speeches of Fed officials such as Chairman Jerome Powell, as well as the minutes of the last meeting scheduled to be released on Wednesday.
"It's difficult to predict how long this will last," but the probabilities shown by Polymarket "highlight the depth of political divisions," HSBC strategists wrote in a report."There is very little U.S. data released this week, but Wednesday's Federal Open Market Committee minutes will be watched."