Morgan Stanley "U.S. government shutdown likely to last 10–29 days"

Minseung Kang

Summary

The U.S. Treasury options market said the U.S. government shutdown is likely to last at least 10 days and up to 29 days.
Morgan Stanley emphasized, based on the Treasury options' straddle structure, that a short-term end is unlikely.
The options market reflected in price movements the possibility that the shutdown period will be about 10–29 days.

The U.S. Treasury options market has suggested that this U.S. government shutdown could continue for at least 10 days and up to 29 days.

On the 4th, according to O'Daily, a media outlet specializing in virtual assets (cryptocurrencies), Shaun Zhou, the strategist who leads Morgan Stanley's interest-rate strategy team, analyzed that "Treasury options reflect the view that the U.S. government shutdown that began on the 1st is unlikely to end in the short term."

This analysis was based on a one-day straddle (straddle) structure, which simultaneously buys and sells call and put options with the same strike price. Straddles are commonly used as an indicator to gauge the market's expected level of volatility.

Morgan Stanley wrote in the report, "U.S. Treasury futures options reflect risk factors around the timing of major economic indicator releases," and explained, "Even if indicator releases are delayed, the market prices in risk premia for various possibilities across future dates." The analysis said the options market is using price movements to gauge the shutdown period.

Meanwhile, the report analyzed that, assuming the September employment report is released four business days after the shutdown ends, the market most heavily prices in the possibility that this shutdown will last about 10 to 29 days.