Time Running Out to Avert Government Shutdown

Henrietta Treyz, co-founder at Veda Partners, discusses the growing potential for a government shutdown as both sides battle it out for a short-term spending bill.

The top four congressional leaders will meet with President Donald Trump at the White House on Monday, a day before federal funding would expire if the two parties can’t agree on a short-term spending bill.

The discussions will be the first between Trump and congressional leaders ahead of the deadline to avoid a shutdown. Senate Democratic leader Chuck Schumer and his House counterpart, Hakeem Jeffries, were expected to meet with the president last week but it was canceled by the White House at the last minute.

Now they are meeting Monday at the White House with the president as well as Senate Republican leaders, including Majority Leader John Thune.

The bill at issue would only fund the government until mid-November and must pass before Oct. 1. Democrats are insisting it must include an extension of health-care subsidies and a restoration of budget cuts to health care implemented by Trump’s signature legislation that passed earlier this year. Republicans say negotiations for those issues can happen after averting a shutdown.

“We can have that conversation. But before we do, release the hostage. Set the American people free. Keep the government open, and then let’s have a conversation about those premium tax credits,” Thune said on NBC’s Meet the Press Sunday.

Republicans will need at least seven Democrats to back the short-term bill in the Senate, which has already passed the House. Trump has threatened mass firings of federal workers if the government shuts down.

“The bottom line is very simple: It’s up to them,” Schumer said on Meet the Press, referring to the Republicans. “We’ll see on Monday — are they serious about negotiating with us.”

Schumer dismissed the threat of mass firings as something the administration was going to do anyway. He noted a portion of the mass layoffs earlier this year were restored by the courts, or the administration itself backed off.

Prolonged government shutdowns have historically lifted prices for long-dated Treasuries, according to Citigroup, providing a potential upside for bond investors as the US hurdles toward another potential closure.

Strategist Edward Acton found Treasuries with longer maturities rallied in the run-up or during lengthy shutdowns over the past three decades.

The most notable was in 2018 — a work stoppage that stretched more than a month — when yields on benchmark 10-year bonds tumbled nearly half a percentage point. Back then, rates began to move lower ahead of time as concern grew the shutdown would spark a recession.

“History has shown more bullish reactivity to prolonged shutdowns, with risk-markets a bit more buoyant,” Acton wrote in a note Monday.

Prior government stoppages have resulted in temporary hits to economic growth as non-essential government workers were furloughed. But adding to the risks this time around are comments by the White House, stating it wants to push through widespread layoffs. What’s more, economic data risks being delayed, including Friday’s jobs report from the Bureau of Labor Statistics.

“Betting markets imply a greater than five-day shutdown, potentially delaying key labor market inputs, with the administration raising the economic stakes and left-tail of a funding lapse,” Acton said.

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