(updated with correction)
The political paralysis in Washington that shut down the federal government Oct. 1 and is bringing the U.S. within days of breaching its debt ceiling is taking a toll on institutional investors, from spiking short-term borrowing costs and market uncertainty to general frustration.
The disruptions range from small, but annoying, glitches like those that faced organizers of the EDHEC-Risk Days North America conference in New York Oct. 8, where conference materials shipped from France were delayed due to short staffing at a U.S. Customs facility.
One of the biggest gaps for money managers is the silence from the Department of Labor's Bureau of Labor Statistics, which produces monthly employment figures used as a key economic indicator. The October numbers did not come out as scheduled Oct. 4, and managers are already worried about the batch scheduled for release Nov. 1.
“I think every asset manager is looking at every asset class you are trading,” said Michael O'Brien, vice president and director of global trading for Eaton Vance Management in Boston. “It's a critical number and we didn't get it. You're somewhat flying blind.”
For Bob Holcomb, executive director for legislative and regulatory affairs for J.P. Morgan Asset Management, the shutdown means there is nobody at the Department of Labor's Employee Benefit Security Administration to handle questions on regulations or exemptions, let alone much-anticipated guidance on fee disclosure, lifetime income projections and more.
“The regulatory agenda at DOL has kind of come to a standstill,” Mr. Holcomb said. “There are only about 14 people in Washington and none of them are connected with ... the areas we care about.”
The silence at the Commodity Futures Trading Commission is making life confusing for asset managers just getting used to new trading and clearing rules for the derivatives market, where U.S. Treasuries play a big role. “Both the buy side and sell side have significant concerns,” said Mr. O'Brien, noting the uncertainty has prompted traders to revert to trading by voice instead of electronically. “We've taken a big step back,” he said.
Between the dark CFTC and U.S. Department of Agriculture, commodity traders are left to their own devices for getting commodity pricing on some futures contracts and other market reports that help derivatives traders track prices and trends.
It's also affecting the repurchase agreements that derivatives traders strike with banks to buy and sell Treasuries. “In a calm market, repos are very attractive,” said Mr. O'Brien. When there is turmoil (over government bond risks), “it can put stress on the entire financial system.”
And then there is the bond market, which has seen plenty of upheaval as major players like Fidelity Investments seek to avoid Treasury securities that mature in the coming weeks, or even move into cash or European debt.
BlackRock Inc. also said it was reducing exposure to the riskiest Treasury maturities.. In a statement, BlackRock said it has actively managed its money market funds in recent weeks “with an eye toward the possibility that the government could reach its borrowing authority after Oct. 17. We continue to take prudent actions in preparation for all potential outcomes.”