Correction appended: Oct. 18, 2013, 5:35 a.m. E.T.
Finally, traders across Asia woke up to the news they had been waiting for: the U.S. Congress had passed a budget deal, narrowly averting a default. And how did markets react to this last-minute escape from financial oblivion? “Looking at my screen here,” says Jay Roberts, head of portfolio advisory for RBC Wealth Management, “Asian markets are up, but there’s no major market that I can see here that’s up more than one percent.”
Indeed, what stood out about today’s trades, and the past few weeks of trades, is how feebly markets have reacted to the daily twists and turns of the budget showdown. The muffled rally across Asian markets shows that while fear of default ran wide, it didn’t run very deep. “There was a bit of a sense of almost boredom with it this time around,” says Roberts.
That’s partly because the drama in Washington has grown a bit predictable. “Most of the market participants have actually been expecting this to be resolved,” says Becky Liu, a rates strategist with Standard Chartered. “Today, it’s more like a reverse of the losses over the past couple of days.”
There wasn’t even all that much to reverse, aside from a brief slide in the value of the yen and a blip in yields on short-term U.S. Treasury bills, which rose above some longer-term bills.
Jay Roberts of RBC was hard-pressed to find any other tangible signs of panic. “There was nothing really that noteworthy that would keep you awake at night,” Roberts said. In fact, he noted that the VIX, a measure of volatility in the S&P 500, hardly budged throughout the budget battle. Compare that with the earlier bout of Congressional brinksmanship in 2011, when the VIX jolted into panic territory.
Of course, markets may not react to the next round of default brinksmanship with the same feeling of malaise. “The more it’s put out there, there’s always the risk that the closer it goes,” says Roberts. “They’re playing with fire in that respect.” The current budget deal will fund government through Jan. 15, buying Congress three more months to stamp out the fire. The markets may not be moving, but they will be watching.
An earlier version of this article misstated that yields on short-term Treasury bills rose above “long-term bonds.” The yields rose above some longer-term bills, not bonds.