April 19, 2017 / 3:29 PM / 2 years ago

Govt shutdown unlikely next week, but chances rise later in year: Goldman

NEW YORK (Reuters) - There is a one-in-four chance of a partial federal government shutdown at the end of next week, but if lawmakers kick the can down to next month before approving a spending bill the risk rises to about 30 percent, said Goldman Sachs economists in a Wednesday note.

Goldman said a “clean” short-term extension will likely be passed to avoid lawmakers’ disagreement on controversial items, eluding a shutdown in April 29. A longer extension through September, however, becomes harder because it would need to tackle issues like funding for a proposed border wall with Mexico or stripping federal resources from so-called sanctuary cities.

“Even if all Republicans support the bill passage is not guaranteed, since it is likely to need 60 votes in the Senate, or at least 8 Democrats in light of the 52-seat Republican majority. In the House, the bill is likely to need some Democratic support as well, since some fiscal conservatives are likely to vote against it,” Goldman economists wrote.

The Wall Street bank sets an even higher risk of a shutdown in October as the new fiscal year begins.

On a separate note, Societe Generale economists said in the “unlikely event of a shutdown,” markets would see a further reversing of the so called Trump trade which saw bonds sell off and stocks rally.

“We may see a further unwinding of the post-US-election sell-off, with a knee-jerk reaction pushing (the 10-year Treasury yield) back towards 2 percent.”

Benchmark 10-year notes US10YT=RR last fell 11/32 in price to yield 2.2178 percent, from 2.179 percent late on Tuesday.

The S&P 500 index .SPX was recently down 2 percent from its record closing high set in March 1.

Reporting by Rodrigo Campos; Editing by Chizu Nomiyama

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