Republicans and Democrats have yet to come to deal on the budget, and now a government shutdown may hit this weekend.
The last time the government shut down however, bond markets didn’t really care all that much, according to Societe Generale’s Rudy Narvas.
There were a few exceptions, but overall, the market ignored the crisis, and focused on the Fed.
From Rudy Narvas:
In the first three months of the stand-off, markets felt that the dispute would resolve itself out and there were some reports of Treasuries rallying during the December shutdown on speculation of a compromise. In the second half, optimism may have faded, but there was still very little reaction to debt crisis news, such as a downgrade warning issued by Moody’s. Today, markets may be more distracted by other events such as Fed policy and the current dislocation in repo markets caused by the Dodd- Frank legislation.