Treasuries Rally as Traders Brace for Possible Delay of Payrolls Report

A government shutdown would start at 12:01 a.m. on Wed., Oct. 1 if a spending agreement isn’t reached. (Anna Moneymaker/Getty Images)

Key Points

• Treasury prices are higher, with the 10-year yield down 0.027 percentage points and the 30-year yield down 0.025 percentage points.
• A potential government shutdown could delay Friday’s employment data, which economists expect to show 51,000 jobs added in September.
• Past government shutdowns have delayed jobs reports, with a 16-day shutdown in 2013 delaying the September report.

This week’s hotly anticipated event—Friday’s employment data—may be delayed, and that’s sparking a flight to quality in the debt market.

Prices of Treasuries are higher as evidenced by lower yields of key long-term bonds. Yields move in the opposite direction of prices. The 10-year Treasury yield is down by 0.027 percentage points, while the 30-year yield is down by 0.025 percentage points. Treasuries, the world’s most widely traded and safest government debt, typically rally in times of uncertainty.

The gains comes as the Bureau of Labor Statistics, a unit of the U.S. Department of Labor, prepares to release monthly employment data on Friday, a key data point for traders. Economists expect the report to show an addition of 51,000 jobs in September, according to FactSet—but the possibility of a government shutdown Wednesday means the report may be delayed.

Payrolls Friday “could be the first high profile victim of a potential government shutdown if Congress is unable to reach an agreement on a short-term funding resolution by midnight tomorrow night,” wrote Jim Reid, head of macro and thematic research at Deutsche Bank.

Precedence exists: A government shutdown that lasted 16 days delayed the September jobs report back in 2013. The longest and the latest government shutdown in American history, of 35 days, ended in 2019. In 1996, there was one for 21 days. Most others have lasted for a few days or even hours.

The longer lawmakers keep the government shut, the greater the implications. Federal employees go without pay, statistical releases get halted, and economic output gets threatened. Meanwhile, investors and the Federal Reserve will struggle to get an accurate sense of the economy at a critical juncture. Traders want to know the extent of labor market weakness and how that may impact the odds of an extended cycle of interest-rate cuts.

“Eventually the data would be crunched, published, and processed by the market,” wrote Ian Lyngen, rate strategist at BMO Capital Markets. “However, the longer it takes for the BLS to come back from furlough, the more distorted and dated the information would become.”

“A prolonged closure might also impact the October report,” J.P. Morgan writes. The payrolls report for October releases on November 7. “Yields could fall into a shutdown, though we expect any decline to be fairly limited.”

J.P. Morgan sees yields rising over time as the firm finds them roughly 0.15 percentage points “too low” versus fundamentals.

In contrast, Deutsche Bank’s latest global markets survey, published on Monday, showed that 53% of respondents believe 10-year yields should fall in this rate-cutting cycle, while 32% think they should rise.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.