Shenwan Hongyuan Group Co., Ltd. released a research report stating that on September 30, due to the failure to pass temporary fiscal appropriations in time, the US government fell into shutdown again after nearly 7 years. The long-term impact of government shutdowns on major asset classes is relatively limited. US stocks do not necessarily panic and fall - the S&P 500 averaged a 2.91% gain during government shutdowns with a 75% win rate; US bonds showed mild safe-haven trading with more pronounced declines at the front end - 10-year Treasury bonds had a 75% win rate with an average decline of 2.25BP, while 2-year Treasury bonds had a 100% win rate with an average decline of 8BP; the US dollar was weak but the decline was not significant, averaging a 0.30% drop; gold rose slightly but with a low win rate, averaging a 1.07% increase, with higher gold gains during prolonged government shutdown events.

Shenwan Hongyuan Group Co., Ltd.'s main viewpoints are as follows:

On September 30, due to the failure to pass temporary fiscal appropriations in time, the US government fell into shutdown again after nearly 7 years. What are the special features of this government "shutdown" and what potential impacts might it have on the US economy and markets?

**Question 1: Why did the US government "shut down" this year? Healthcare subsidy policy is the core contradiction**

This year's US government shutdown was primarily caused by disputes between the two parties over whether to extend healthcare insurance subsidy policies, failing to pass temporary appropriations in time. Democrats insist on extending the enhanced healthcare insurance tax credits from Obama's Affordable Care Act and demand the removal of Medicaid cuts from the Inflation Reduction Act; Republicans blame Democrats for forcibly bundling issues and hold them responsible for the government shutdown.

The market expects the government shutdown duration may reach 15 days or more. As of October 6, the House has passed a temporary appropriation bill, but the Senate has failed to reach 60 votes in multiple attempts. Market predictions show an average 67% probability of a shutdown lasting 15 days or more. Government reopening requires bipartisan compromise, with higher likelihood of short-term temporary appropriations and temporary extension of Affordable Care Act premium tax credits.

**Question 2: What happens when the government "shuts down"? Non-essential government activities cease operation, statistical data release suspended**

During government "shutdown," non-essential government activities cease operation, while essential activities involving life, property, and national security can continue to operate normally. Federal statistics and data may be suspended, mainly affecting US Census Bureau data on retail and real estate; Bureau of Labor Statistics data on non-farm employment, unemployment rate, CPI; military, law enforcement, social security, and healthcare functions continue to operate.

**Question 3: Historically, how many times has the US government "shut down"? 11 shutdowns with an average duration of 8.6 days**

Since 1980, the US government has "shut down" 11 times, with an average duration of 8.6 days, the longest being 34 days, the shortest 1 day, with October being a high-frequency period for government shutdowns.

Since 1977, the US government has almost never passed fiscal budget bills on time. When the new fiscal year begins on October 1, the US generally uses temporary appropriation bills for transition, making October a high-frequency shutdown period.

Government shutdowns are triggered by two types of disputes. First, fiscal policy disputes with controversy over whether fiscal policy should expand, such as the Reagan administration shutdown in 1981. Second, political maneuvering disputes. Most government shutdowns are unrelated to fiscal positions but are used as political maneuvering tools by opposition parties, with both parties forcibly bundling healthcare, immigration, and other policies with fiscal budgets to achieve their political goals, such as the 2018 government shutdown.

**Question 4: How does government "shutdown" affect GDP? A one-month shutdown may only impact 0.02 percentage points**

Government "shutdown" has a relatively weak impact on US GDP, with a one-month shutdown potentially affecting only 0.02 percentage points. Government shutdowns mainly affect the economy through channels such as civil servant income and policy uncertainty. Due to the short duration and wage compensation afterward, the impact on GDP is limited. The 34-day government shutdown in 2019 resulted in a permanent GDP loss of $3 billion that year, approximately 0.02% of GDP.

**Question 5: How does government "shutdown" affect employment? May slightly raise unemployment rate, falling after work resumption**

Government shutdowns often have no substantial impact on non-farm employment but may temporarily raise unemployment rates slightly, falling after work resumption. During government shutdowns, civil servants are furloughed without pay but remain employed, having minimal impact on non-farm employment; however, government shutdowns may lead to increased temporary unemployment under CPS criteria. The 34-day government shutdown in 2019 caused unemployment rates to first rise slightly by 0.1 percentage point, then decrease by 0.2 percentage points.

**Question 6: How does government "shutdown" affect market pricing? US stocks still rise, Treasury yields fall, US dollar weakens**

Government shutdowns have relatively limited long-term impacts on major asset classes. US stocks do not necessarily panic and fall - the S&P 500 averaged a 2.91% gain during government shutdowns with a 75% win rate; US bonds showed mild safe-haven trading with more pronounced declines at the front end - 10-year Treasury bonds had a 75% win rate with an average decline of 2.25BP, while 2-year Treasury bonds had a 100% win rate with an average decline of 8BP; the US dollar was weak but the decline was not significant, averaging a 0.30% drop; gold rose slightly but with a low win rate, averaging a 1.07% increase, with higher gold gains during prolonged government shutdown events.

**Risk Warnings:** Escalation of geopolitical conflicts; US economic slowdown exceeding expectations; Federal Reserve turning more "hawkish" than expected.