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

Morgan Stanley interest rate strategists led by Shaun Zhou pointed out that the pricing of Treasury options indicates that the US government shutdown that began on October 1 will last at least 10 days and possibly as long as 29 days. Treasury futures options "will price the risk premium on the release date of important economic data". Morgan Stanley strategists wrote in the report that while the final release date of the delayed economic indicators has not yet been determined, the options market will price the risk premium on multiple future dates based on probability distributions. The analysis is based on the price of one-day straddle options, which simultaneously buy or sell put and call options with the same strike price. The so-called break-even point for straddle options represents how much the market needs to move in order for the buyer to make a profit. The report shows that the break-even point on the day of the release of the jobs report is often 5 basis points higher than the days around the release date. Assuming that the September jobs report is released four business days after the end of the government shutdown (as it was in 2013), the probability that the market implies that the shutdown will last 10-29 days is much higher than shorter or longer periods. (Jin Ten)