US 10-Year Treasury Yield Falls as Shutdown Reaches 15 Days
The US 10-year Treasury yield fell to 4% on Wednesday, nearing April lows after US Federal Reserve Chair Joseph Powell’s comments on labor market weakness strengthened expectations for more rate cuts.
The ongoing US government shutdown, which has delayed key data releases, further clouded the outlook and fuelled demand for safe-haven assets.
US government shutdown reaches 15 days with distortions to data and market activities. The economic and financial market impact has been muted thus far, Wells Fargo said in a commentary note.
Approximately 600,000 federal government workers have been furloughed without pay, while the remainder of the 2.3 million federal civilian workforce is still working, although also without pay.
Markets are now almost fully pricing in a quarter-point cut this month, with another expected in December and three more next year.
Before the government shutdown, Wells Fargo expected the Federal Open Market Committee (FOMC) to cut the federal funds rate by 25 bps at its upcoming meeting on October 29-30.
“An extended shutdown strengthens our view that another 25 cut is coming in a couple of weeks. Although the shutdown probably has not had a large impact on the U.S. economy, directionally it is clearly a negative rather than a positive development.”
Bond yields were also pressured by rising geopolitical risks and renewed US-China tensions after President Trump threatened Beijing with a cooking oil embargo in response to China’s soybean boycott, pushing investors toward Treasuries.
The federal government has been shut down for 15 days, and there appears to be no end in sight for the shutdown. The House of Representatives passed a largely Republican-backed continuing resolution (CR) on September 19 that would fund the government through November
However, this plan has been stalled in the Senate, with most Senate Democrats opposing the measure. Passing a CR requires at least 60 votes to end a filibuster in the Senate, and thus far not enough Democrats have joined Republicans to pass the House-passed CR.
