5-Year Swap Rates Hit Year-to-Date Low

Policy-sensitive yields continue to decline. Short-term UST yields gradually declined over the course of today’s session, largely driven by month-end positioning and without a clear catalyst. The short-end of the curve is now near or at YTD lows, with the 2-year yield (3.61%) down 7 bps today and 35 bps lower from late July. The spread between 2-year and 10-year yields is 62 bps, the steepest the curve has been since April; long-dated yields have climbed 25-50 bps above YTD lows on renewed inflation expectations given more likely near-term rate cuts and potential tariff impacts. Meanwhile, the S&P 500 and NASDAQ rose ~0.20% today, though an Nvidia revenue forecast miss drove a late sell-off.

Fed Vice Chair Williams hints at rate cut. Federal Reserve Vice Chair and New York Fed President John Williams said Wednesday afternoon that September’s FOMC meeting will be a “live” one, hinting at a possible rate cut. He added that the “risks [are] more in balance,” referring to the Fed’s dual mandate of maximizing employment and stable prices, while arguing that policy would remain “somewhat restrictive” even if the Fed were to cut rates. The comments largely echoed Chair Powell’s tone at last Friday’s Jackson Hole speech, where he stated that “the shifting balance of risks may warrant adjusting our policy stance.”

EU likely to eliminate all tariffs on US industrial goods. According to an anonymous insider, the European Union is accelerating the legislative process to remove tariffs on US industrial goods. The move comes as a tradeoff that will allow the US to lower its tariffs on EU automobile exports from 27.5% to 15%. EU leader Ursula von der Leyen views the deal as necessary for economic certainty and stability; he described the deal as “strong, if not perfect.” If the EU proposes legislation by the end of this month, the new 15% levy on cars will apply to exports retroactively from August 1st.