The U.S. Treasury options market suggests the government shutdown will last 10 to 29 days

Morgan Stanley interest rate strategists led by Shaun Zhou noted that U.S. Treasury options pricing suggests the U.S. government shutdown, which began on October 1, will last at least 10 days and potentially up to 29. Treasury futures options "price in risk premiums associated with the release dates of important economic data."

Morgan Stanley strategists wrote in a report that while the final release date of delayed economic indicators has yet to be determined, the options market will price risk premiums for multiple future dates based on probability distributions. This analysis is based on the price of a one-day straddle, an option structure that simultaneously buys or sells a put and a call with the same strike price. The so-called break-even point for a straddle represents the market volatility required for the buyer to profit.

Reports show that the breakeven point on employment report release days tends to be 5 basis points higher than on days surrounding the release date. Assuming the September employment report is released four business days after the government shutdown ends (as it did in 2013), the market is implying a much higher probability of the shutdown lasting 10-29 days than for shorter or longer periods. (Jinshi)