Traders are getting more and more pessimistic about the government shutdown ending any time soon
The market expects the shutdown to last well into November.
As the government shutdown that began at the beginning of the month enters its fourth week, market pessimism about a speedy resolution to the impasse has grown substantially, based on the prevailing sentiment gleaned from prediction markets data.
In particular, data from the “How long will the government shutdown last?” contract offered by Robinhood allows us to look at granular shifts in how traders perceive the negotiations to be going.
(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company.)
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The price of an asset resolves to $1 in the event it occurs and $0 in the event it does not. Until that official resolution, the market price of the asset varies, and is a proxy for the percentage chance the market assigns to it happening.
Based on the implied probabilities represented by the prices of different tranches of these contracts, we can see how the median number of expected days of the shutdown have changed.
The priced-in chance of a shutdown lasting over 60 days has now hit 25%, which would mean the government is closed through at least the end of November. As it stands, based on pricing data current to Sunday, the median expected total length of the shutdown is now 44 days, bringing it to mid-November.
If traders anticipated that a resolution to the negotiations was approaching, we would expect to see the number of days remaining in a shutdown decline. If traders price that negotiations are at a stalemate and conditions for a resolution are not moving, we would expect the number of days of the shutdown to increase at a rate of one day per day, and the days remaining to stay flat.
We are not seeing that.
What we’re seeing is something worse: traders are more pessimistic about resolving the shutdown today than they were a little over a week ago. Given that we are today 21 days into shutdown, expectations have shifted.
On October 8, the median expected length of the shutdown in total was 23 days, implying traders expected the shutdown would continue for another 15 days.
As of Sunday, October 19, the median expected total length of the shutdown was 44 days, implying that traders are pricing in another 25 days of shutdown.
Essentially, the market’s saying that we’re further away from a resolution to the shutdown than we were even a week ago — that the situation has deteriorated and not improved.
