Treasury yields stabilize as U.S. shutdown deal advances, boosting market sentiment

U.S. Treasury yields rose from last week’s highs after signs of progress toward ending the U.S. government shutdown. On Friday, the 10-year Treasury yield was 4.11%, the 2-year note was 3.55%, and the 30-year bond stood at 4.70%.

Today, the Senate passed the House-passed bill to fund the government until January 30. The bill is expected to be approved by both chambers and signed by President Donald Trump, ending the longest federal shutdown in U.S. history. 

The 10-year note and 30-year note continue to show signs of stability

Some analysts have revealed that reopening the government may ease pressure on liquidity and restore confidence in U.S. assets. 

The $200 billion currently held in the Treasury general account will be released to the market, increasing liquidity and alleviating uncertainty surrounding federal spending plans, which had raised concerns about strained demand and a possible increase in borrowing costs.  

Global stocks rally after the Senate advances a plan to end the government shutdown. Plus, monthly mortgage data from @ICE_Markets shows lower rates drove the number of highly qualified refinance candidates in October to a three-and-a-half year high. @KristenScholer has more in… pic.twitter.com/Y8rK7MOnbu

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Bob Savage, head of markets macro strategy at BNY, revealed that the connection between government shutdown risks, heavy Treasury issuance, and fading foreign demand for U.S. assets has created unstable liquidity.

He noted that if the U.S. government reopens smoothly and the Fed demonstrates readiness to stabilize liquidity, risk appetite may be renewed, especially in stocks related to AI. 

So far, Treasury yields have remained relatively stable since last week, with the 10-year Treasury note holding a rate of 4.111%, the 2 Year note increasing by three basis points to 3.58%, and the 30-year bond rising by one basis point to 4.71%. 

Equity markets also responded positively to the renewed signs that the government shutdown will soon come to an end. In the open market, the Dow futures rose by 204 points, representing 0.43%, S&P 500 futures rose by 0.98%, and Nasdaq 100 futures rose by 1.52%.

Most AI and technology stocks gained in the premarket, including Nvidia, Alphabet, and Meta, supporting the index’s price rise. Based on LSEG data, out of the 446 S&P 500 companies that have reported Q3 financial results, at least 87% have reported results that are greater than expected, with overall earnings growth estimated at 16.8% year-over-year. 

Across the global market, the Stoxx 600 index in Europe gained over 1.5%%, Germany’s DAX edged higher by around 1.3%, and France’s CAC 40 inched higher by roughly 1.53% as well. The Japan Nikkei increased by 1.3% today, while the Kospi index jumped over 3%. Hong Kong’s Hang Seng advanced more than 1.5%. 

AI and semiconductor stocks have also rebounded, with Nvidia climbing 3.6%, Alphabet rising 2.5%, and Meta increasing 1.07%. 

Investors on Polymarkets place an 87% chance that the government will open this week

The government shutdown has been ongoing for approximately 40 days, disrupting the release of official economic data on inflation, employment, and consumer trends.

Kevin Hassett, White House economic adviser, warned that if the closure persists into the fourth quarter, economic growth could turn negative. 

Despite the uncertainty presented by the government closure, the yield on the 10-year note improved on Monday, showing signs of improved risk appetite among investors.

The enhanced yield signifies that investors are pricing in lower near-term volatility. Investors on Polymarket have placed a bet that there is an 82% chance the shutdown will end this week.

According to Nigel Green, a market strategist, investors are viewing the Senate’s latest move as a sign that market conditions may soon normalize. He added that if the government opens this week, Treasury yields will stabilize and capital will flow back into risk assets by December. 

Bob Savage, head of markets macro strategy at BNY, noted that the Treasury market is signaling confidence is returning, but it’s fragile, adding that markets are now pricing in a resolution; they need confirmation. 

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