Divyang Shah, IFR Senior Strategist
The stalemate surrounding the US government shutdown and debt ceiling deadline remains in play. While market concerns can be seen in T-bill yields, the VIX index and CDS, there is little sign of panic.
The expectation remains that the game of chicken will not be played out in full, and a compromise will eventually be achieved.
The much-focused-on October 17 deadline is not a real line in the sand, and is only the date at which the Treasury will exhaust its borrowing authority.
With cash balances expected to be around US$30bn, the US could in fact still continue to meet its obligations until Nov 1, when the Treasury will almost certainly be unable to meet expected payments of US$60bn without a higher debt ceiling.
There remains the potential that a short-term fix will be agreed allowing the bills to be paid for a few more weeks.
The lack of panic can be seen on the VIX, which has moved above 20% but is still below its June 2013 highs (close to 22%), but more importantly we are seeing record volume on VIX options.
While those with positions will choose to buy tail risk protection, others are simply choosing to sit on the sidelines and stay flat.