Shutdown Countdown Expires; Markets Still Standing; What Now?
Not that market participants were expecting any explosions when the shutdown countdown reached 00:00, but it wouldn't have been unreasonable to expect at least a modest reaction. Instead we're left with essentially nothing.
Volume and volatility were somewhat elevated overnight, but when we step back from these trading levels and look at them in the context of the past few weeks, they will be very hard to identify as having correlated to any significant event. It's sad in a way--that this is the visual representation of all the seemingly high drama.
Overnight markets saw limited movement for stocks and modest weakness for bonds. 10 yr yields never went higher than the overnight highs from Friday (2.67), and even look to have hit support at overnight levels from last Thursday (2.66). Bonds are weaker for sure but rally momentum has been dying down for several days. We may well have seen a similar pull back regardless of shutdown developments.
MBS opened up significantly weaker, but the first few ticks of the day should be ignored. Liquidity didn't come online until Fannie 3.5s were within striking distance of yesterday's range. They're now 5 ticks higher than the first real trades of the day at 101-23, though this is still 6 ticks weaker than yesterday's latest levels.
The Construction Spending report that had been scheduled for 10am is now indefinitely delayed due to the shutdown, but the ISM report remains on schedule.