Government shutdown may impact the economy, U.S. Treasury yields drop to this week's low

On Friday, U.S. Treasury prices rose as traders reacted to signs that a government shutdown may be weakening economic activity. Yields on Treasuries across all maturities fell by at least 2 basis points, with long-term bonds dropping more than 4 basis points. The yields on 10-year and 30-year Treasuries both hit their lowest levels of the week. The shutdown began on October 1 due to the White House and Congress failing to reach an agreement on funding. An additional 2 million federal employees are expected to be unable to receive paychecks next week, adding to the 250,000 who have already gone unpaid this week, further expanding the impact. Tomdi Galoma, Managing Director of Mischler Financial Group, stated, "The government shutdown has played a key role in the market's expectations of a weakening economic outlook. The key point is that this situation may last for some time." Due to the government closure, the release of official economic data has been delayed. However, economists from Citigroup and Goldman Sachs indicated that state-level data shows an increase in initial jobless claims last week. This has reinforced market expectations that the Federal Reserve will cut rates for the second time this year on October 29. Federal Reserve Governor Christopher Waller stated on Friday that he supports two more rate cuts this year based on the weak labor market. Other factors driving the rise in Treasury prices include strength in the UK and French bond markets, a drop in oil prices to several-month lows, and a favorable supply environment