Treasuries Set for Third Quarter of Gains as Shutdown Looms

Core Viewpoint - Treasuries are expected to close out a third consecutive quarter of gains as a potential US government shutdown raises concerns about economic growth, making bonds more attractive [1][2]. Group 1: Treasury Market Performance - The bond market has shown a 1.5% return in the recent quarter, with Treasuries returning over 5% in the first three quarters of 2025, indicating the best performance since 2020 [1]. - The 10-year yield remained stable at 4.14%, while the two-year yield is at 3.60%, close to its lowest levels in the past year [3]. Group 2: Economic Implications of Government Shutdown - A potential government shutdown could disrupt operations, delay key economic data releases, and negatively impact economic growth, depending on its duration [2][5]. - The uncertainty surrounding the labor market, highlighted by recent reports of weakness in job openings, adds to the critical juncture of the economy regarding growth and inflation [5]. Group 3: Market Sentiment and Federal Reserve Actions - The market has rallied this year due to expectations of interest rate cuts by the Federal Reserve, which recently lowered rates to a range of 4% to 4.25% but remains cautious due to persistent inflation [4]. - Scott Buchta from Brean Capital noted a "small flight to quality trade," as more investors become optimistic about the market amid the potential for an extended government shutdown [3].