Here Comes Another Government Shutdown: What You Need to Know
Here Comes Another Government Shutdown: What You Need to Know
Yet another government shutdown. At least, it’s looking that way as I’m writing this. Should you be worried? History shows that you probably shouldn’t be. Unfortunately, government shutdowns are a fairly common occurrence, but the good news is their impact is usually limited and short-lived.
But does it have an impact on financial markets? Let’s take a closer look at how both the stock and bond markets have behaved in past shutdowns.
Bond Market Resilience
The cornerstone of global fixed income markets, the U.S. Treasury market, generally remains unaffected during government shutdowns. Here’s why:
Debt Obligations Continue: The Treasury Department still makes coupon payments and continues debt auctions during a shutdown. These operations are considered “essential” to maintaining the nation’s creditworthiness, so they proceed even when other government functions pause.
Historical Impact Is Minimal: Shutdowns have not historically been very eventful for bonds. In fact, uncertainty sometimes drives demand for Treasuries as a safe-haven asset. During the last three shutdowns, U.S. 10-year Treasury yields declined by an average of 0.05%. In the 2013 shutdown, the yield dipped by 0.02%.
Credit Ratings in Focus: While Treasuries themselves remain stable, rating agencies (Moody’s, Fitch, and S&P) have flagged that repeated shutdowns and fiscal gridlock reflect poorly on U.S. government finances. All three agencies have already downgraded the U.S. from their highest credit tier in recent years.
Stock Market Volatility
Stocks tend to be more sensitive to the noise around shutdowns, though the impact has historically been modest:
Short-Term Jitters: Equity markets often experience volatility leading up to and during a shutdown as investors digest the political uncertainty. Sectors tied to government spending, such as defense contractors, may face additional scrutiny.
Historical Context: Looking back, the S&P 500 has often weathered shutdowns with limited lasting damage. For example, during the 2018–2019 shutdown — the longest in history at 35 days — stocks actually gained ground as the broader market was more focused on Federal Reserve policy and economic fundamentals than on the shutdown itself.
Big Picture Drivers: Ultimately, stock performance during these periods tends to be driven more by corporate earnings, interest rates, and broader economic conditions than by the shutdown alone.
Key Takeaways for Investors:
Whether you’re invested in bonds, stocks or both; the effects of government shutdowns are typically minimal and short-lived.
Bond Markets: Treasuries remain a reliable investment. Shutdowns have historically nudged yields slightly lower, not higher.
Stock Markets: Equities may see short-term volatility, but past shutdowns have not derailed longer-term market trends.
Perspective Matters: The real market-moving risks lie in fiscal policy, interest rates, and economic growth — not in temporary pauses in government operations.
The media tends to exaggerate and dramatize government shutdowns, which can sometimes cause anxiety for investors. Remember, the media cares about getting your attention, not about your financial plan and certainly not about your financial confidence. Don’t play their game. Keep informed, but rest in knowing that this is nothing new, and nothing that has had any long-term impact before.
Ryan Page, CFP®, MBA®
Office & Text:720-826-1092
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
