(Bloomberg) — Treasury options pricing suggests that the US government shutdown that began Oct. 1 will last at least 10 and as many as 29 days, according to interest-rate strategists at Morgan Stanley.
Options on Treasury futures “price in a risk premium for dates when important economic data are released,” Morgan Stanley strategists led by Shaun Zhou say in a report.
Those include the monthly employment report — among the weightiest US economic indicators. Because of the shutdown, jobs data for September, slated to have been published Friday at 8:30 a.m. in Washington, were not. They also include the consumer price index, with September data scheduled to be released Oct. 15.
While eventual release dates for delayed economic indicators aren’t known, “options markets will price in the risk premium over multiple future dates based on a probability distribution,” the Morgan Stanley strategists wrote.
The analysis is based on the prices of 1-day straddles, an option structure in which a put and a call with the same strike price are bought or sold. A straddle’s so-called breakeven represents how much the market needs to move for a buyer to make a profit.
Breakevens tend to be five basis points higher for release dates for the jobs report than for the days before and after, according to the report. Daily expiration dates became available in June with CME Group Inc.’s addition Tuesday and Thursday contracts.
Assuming that the September employment report is released four business days after the shutdown ends — as happened in the most recent comparable instance in 2013 — “the market implies a much higher probability that the shutdown will be between 10-29 days,” than shorter or longer periods, the report says.
The options-implied probability of a 10- to 29-day shutdown exceeds 60%. A four- to nine-day closure is just over 20%, while one lasting at least 30 days is about 10%, Morgan Stanley calculated.
The prediction-market platform PolyMarket agrees that a 10- to 29-day shutdown is likeliest, but sees a higher probability of a longer-lasting closure, the report says.
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