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Market becomes increasingly unsettled without government data during shutdown

By Shai Akabas

Wednesday, October 9, 2013

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Qi Wang contributed to this post. 

With the government shutdown entering its second week, the market has become increasingly unsettled as many standard economic data reports continue to go unpublished. This only adds to the uncertainty surrounding the approaching debt limit deadline.

The Financial Times has reported on some of the significant financial market impacts. For example, due to the absence of an employment report last Friday, only 1.5 million of CME’s Eurodollar futures contracts – used to hedge against fluctuations in short-term U.S. interest rates – were traded on that day, compared to 3.8 million on the previous jobs report day in early September.

Debt Limit: Market Reaction

As we approach BPC’s projected debt limit X Date range without a resolution, risks to markets, the economy, the federal government, and American citizens will grow. In these posts, we will attempt to report on these risks and their impacts as they occur.

Additionally, new offerings have fallen sharply in the corporate debt market, selling only $11.5 billion investment-grade bonds compared to $35 billion the week before. Sales have also collapsed in the “junk” bond (a high-yield or non-investment grade bond with high default risk) market with only four deals totaling $1.1 billion over the past week, falling from $17.8 billion in the preceding week. These lower volumes are showing up in many categories of securities.

Maybe most importantly, lacking monthly payrolls data, the Fed may feel less comfortable with starting to “taper” the central bank’s emergency asset-buying program at the board’s next meeting in a few weeks.

None of these impacts alone is catastrophic, but the shortage of data is clearly adding to anxiety in the markets.

2013-10-09 00:00:00