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30 Sep 2013
Flash: Potential impact of a US shutdown in the Greenback - Deutsche Bank
FXstreet.com (Barcelona) - Based on the market reaction from other past US government shutdowns, one may find a valuable insight to be reminded how assets such as US Treasury bonds, stocks or the Greenback performed during the political gridlock.
As presented by Deutsche Bank, the overall market reaction to other past shutdown events were:
"Treasuries rallied modestly into shutdowns, and sold off afterwards. The curve was mixed. In recent rallies, curve tends to flatten, and vice versa. When rates were higher in 1990s and 1980s, curve tended to steepen in rallies, as perhaps the front end outperformed in flight-to-quality trades. In the 2011 debt limit increase, Treasuries rallied all the way through, due to the S&P downgrade on Treasuries and the sell-off in risk assets."
"Swap spreads were stable or slightly tightened during the shutdowns, and marginally widened afterwards. Around debt ceiling events, spread movements were mixed with a marginal widening bias on average."
"Stocks tended to sell-off prior to the shutdowns/debt limits, and recovered afterwards."
"The dollar (as measured by the DXY index) tended to weaken into the shutdowns/debt limits, but strengthen afterwards."
As presented by Deutsche Bank, the overall market reaction to other past shutdown events were:
"Treasuries rallied modestly into shutdowns, and sold off afterwards. The curve was mixed. In recent rallies, curve tends to flatten, and vice versa. When rates were higher in 1990s and 1980s, curve tended to steepen in rallies, as perhaps the front end outperformed in flight-to-quality trades. In the 2011 debt limit increase, Treasuries rallied all the way through, due to the S&P downgrade on Treasuries and the sell-off in risk assets."
"Swap spreads were stable or slightly tightened during the shutdowns, and marginally widened afterwards. Around debt ceiling events, spread movements were mixed with a marginal widening bias on average."
"Stocks tended to sell-off prior to the shutdowns/debt limits, and recovered afterwards."
"The dollar (as measured by the DXY index) tended to weaken into the shutdowns/debt limits, but strengthen afterwards."