Government shutdowns make good news. When risks of a shutdown flare up (especially with today’s sort of political theater) it tends to dominate the news coverage. This creates the risk that shutdown news is perceived to impact bonds in a way that isn’t really accurate.
This was the case today, to some extent. Shutdown headlines dominated the afternoon news cycle right at a time when bonds were weakening. So was it the shutdown headlines causing the issues? Not hardly. In fact, the shutdown headlines would have arguably been good for bonds.
Instead, bonds were simply backtracking after having been led into stronger territory by European markets. The latter were on the move due to the latest round of Brexit-related headlines, which basically conveyed “no additional negotiations” for Theresa May’s failed Brexit plan. Additionally, Sky News reported that british lawmakers in May’s party had sent enough letters of no confidence to challenge her leadership.
In the grand scheme of things, this is the 2nd day of moderate weakness after a stellar run for bonds. If you have lock/float decisions to make in the short term, keep a close eye on 2.89%, which was tested multiple times today as a ceiling. 2.82% has been similarly firm resistance below. Next week’s Fed announcement is the biggest flashpoint on the horizon, but a lead-off is always possible before that.