Bond Traders Are Scouring Shutdown Odds in the Absence of Data

Treasury market traders are increasingly looking to online betting platforms for insight into how long the U.S. government shutdown might drag on, as the lack of economic data leaves them with little else to guide their interest rate outlooks.

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Now in its sixth day, the shutdown has taken an unusual turn President Donald Trump’s threat to fire federal employees has made negotiations even more uncertain. Analysts from major institutions, including Goldman Sachs and HSBC, have noted that betting markets currently show high odds the government closure will extend beyond 10 days.

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“Investors are growing concerned that this shutdown could last longer than expected,” wrote BMO Capital Markets strategists Ian Lyngen and Vail Hartman in a client note. “Whether that means one to two weeks or stretches into four to five weeks remains unclear. We expect headlines to focus on small signs of progress, fueling alternating optimism and disappointment about when the government will reopen.”

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On Monday, Treasury yields across all maturities climbed, following similar moves in global bond markets from Europe to Asia amid rising fiscal concerns. Interestingly, traditional safe-haven assets like Treasuries failed to attract the usual influx of investors. Instead, gold, silver, and even Bitcoin rallied, signaling that risk-averse traders were seeking alternatives to U.S. government debt.

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Despite the uncertainty, traders in the swaps market tied to Federal Reserve policy decisions still see an 88% likelihood of an interest rate cut later this month even with key economic data releases on hold.

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Betting platform Polymarket has become a key reference point for many investors trying to gauge the market mood. As of Monday, the site showed a 66% probability that the shutdown would last between 10 and 29 days, while 29% of wagers suggested it could continue for more than 30 days. Only 5% of bets implied that it would end before Thursday within 10 days. The longest government shutdown in history, which occurred in late 2018, stretched on for 34 days.

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The Congressional Budget Office estimates that roughly 750,000 federal employees are currently furloughed, with the shutdown costing about $400 million in lost wages each day.

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According to JPMorgan Chase & Co. Chief Economist Michael Feroli, this episode could have a deeper impact on consumer spending than previous shutdowns. “The executive branch’s threat to fire furloughed workers could lead to a larger consumption hit than we’ve typically seen,” Feroli and his colleagues wrote in a research note.

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Last week, Treasury yields recorded their biggest weekly drop in a month as the shutdown postponed the release of critical labor market data. But by Monday, yields on longer-term debt had rebounded, with 10-year Treasury yields up more than 3 basis points to around 4.15%.

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The rebound came amid a broader global selloff in sovereign bonds. Japan led the move after pro-stimulus conservative Sanae Takaichi scored an unexpected victory in a leadership vote, positioning her as the likely next prime minister. Political turmoil in France added to the market tension, with French bond yields climbing sharply following the resignation of Prime Minister Sébastien Lecornu, which plunged the country into yet another political crisis.

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With Washington gridlocked and more economic reports expected to be delayed, investors are shifting focus to Federal Reserve commentary for clues about policy direction. Key events this week include remarks from several Fed officials most notably Chair Jerome Powell and Wednesday’s release of the minutes from the central bank’s most recent meeting.

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“The uncertainty around how long this shutdown will last remains high,” HSBC strategists wrote in a client report. “The Polymarket odds underscore how deeply divided U.S. politics has become. With limited economic data available this week, investors will be watching the FOMC minutes closely for hints about the Fed’s next move.”

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For now, markets remain on edge, caught between political dysfunction in Washington and shifting global economic dynamics. With Treasury traders relying on prediction markets instead of hard data, the next few weeks could bring more volatility and more clues about how the shutdown, and the Fed’s response, might shape the path ahead for interest rates and the broader economy.

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