Bond Investors Prepare for Storm: Economic Data Expected

A Challenging Period Anticipated for Bond Investors

Bond investors are preparing for turbulent days as the U.S. government reopens and significant economic data is set to be released. This situation requires investors to stay alert against potential fluctuations in U.S. Treasury bonds.

Government Shutdown and Volatility

Following the government shutdown, volatility observed in U.S. Treasury bonds is expected to increase, while the release of critical official data regarding employment and inflation is anticipated to be delayed before the Federal Reserve's (Fed) two remaining meetings of the year. The date of the Fed's next meeting is set for October 29. The $30 trillion bond market may experience turbulence as these data are released.

Challenges in Data Collection Process

The government shutdown may lead to difficulties in gathering economic data. Options movements indicate a rise in demand for hedging against various scenarios for the Fed until the end of the year. Officials are expected to focus on whether the upcoming data will indicate high inflation or a cooling job market when making decisions for potential easing.

Expert Opinions

Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, stated that the prolonged situation may raise questions about the quality of October's economic data, saying, “October data may cause tensions to rise.” Similarly, Gregory Faranello from AmeriVet Securities emphasized that if a solution is found by Thursday, fluctuations could occur alongside both CPI and employment data. Liz Ann Sonders, the chief investment strategist at Charles Schwab, commented, “The October employment report might contain uncertain data due to the impact of the government shutdown.”

Market Expectations

According to Morgan Stanley's interest rate strategists, the option prices from last week indicate that the market expects the government shutdown to last 29 days. Currently, the bond market is moving based on the assumption that there will be a rate cut in October.