US Government Shutdown Impacts Treasury Option Volatility

Morgan Stanley’s rate strategist, led by Shaun Zhou, reports the US government shutdown starting October 1 may disrupt financial markets, affecting Treasury options pricing and economic data releases.

The shutdown potentially extends 10-29 days, impacting Treasury options volatility and delaying key economic indicators, with significant market implications.

Shutdown’s Influence on Treasury Markets and Volatility

Morgan Stanley’s analysis predicts a protracted shutdown, possibly lasting up to 29 days, reflecting significant uncertainty in Treasury options pricing. This projection is based on evaluating straddle options and economic probabilities. The potential delay in key economic releases suggests more volatility ahead. This assessment indicates that investors are adjusting strategies to account for delayed key employment data, underscoring the need to hedge positions. “Market participants are pricing a heightened risk premium into Treasury futures options around major economic data releases, reflecting our analysis on the significant volatility anticipated post-shutdown,” said Shaun Zhou, Lead Rate Strategist, Morgan Stanley. Market reactions show increased risk premiums, heightening volatility expected around data releases, despite no new official updates from key governmental figures about mitigating these effects.

Bitcoin (BTC), currently priced at $122,563.13, has a market cap of $2.44 trillion and a market dominance of 58.25%, according to CoinMarketCap. Over the last 24 hours, BTC’s trading volume reached $82.66 billion, rising 1.98%. In the previous 90 days, BTC saw a price increase of 13.46%, maintaining a circulating supply of 19.93 million out of a total supply of 21 million.

According to Coincu research, continued shutdowns could lead to prolonged economic data delays, impacting investor confidence and treasury markets. This might shift some risk-averse investors toward digital currencies, possibly driving BTC demand higher as hedges against fiscal uncertainty remain a crucial strategy.

Historical Impact of Shutdowns and Cryptocurrency Dynamics

Did you know? The longest government shutdown in U.S. history lasted 35 days from December 2018 to January 2019, significantly impacting various sectors.

Bitcoin (BTC), currently priced at $122,563.13, has a market cap of $2.44 trillion and a market dominance of 58.25%, according to CoinMarketCap.

In the previous 90 days, BTC saw a price increase of 13.46%, maintaining a circulating supply of 19.93 million out of a total supply of 21 million.