Markets Risk-On as Government Shutdown Nears Resolution

Yields rise as Senate makes progress to reopen government. Treasury yields opened 2-3 bps higher today as investors poured into riskier assets on optimism that the government could re-open as early as this week. However, the move higher was limited by a $58B 3-year Treasury auction, which saw the strongest demand since 2023. Yields ultimately closed 1-3 bps higher across the curve, with the 2-year yield at 3.59% and the 10-year yield at 4.12%. Meanwhile, the S&P 500 and NASDAQ closed 1.54% and 2.27% higher, respectively, largely offsetting last week’s decline.

Fed’s Musalem, Daly, and Miran speak on policy outlook. St. Louis Fed President Alberto Musalem aligned himself with Fed officials Goolsbee, Hammack, and Jefferson in adopting a cautious stance toward further easing. Musalem described the current policy rate as near neutral, emphasizing that “It is very important that we tread with caution, because I believe there’s limited room for further reductions without monetary policy becoming overly accommodative.” Meanwhile, San Francisco Fed President Mary Daly signaled more openness to rate cuts, noting that tariff-driven inflation appears contained, while downward pressures in the labor market continue to build. Taking an even more dovish view, Fed Governor Stephen Miran’s view on better-than-expected inflation and the weakening labor market in supporting a 50 bp cut as “appropriate,” and adding that, “At a minimum, the central bank should lower rates by an additional quarter percentage point.”

US & Switzerland approach trade deal. The US and Switzerland are reportedly nearing a trade deal that could significantly reduce US tariffs on Swiss exports. President Trump hit the country with a 39% tariff on August 1st, well above the 15% levy that the EU bloc currently faces. The progress comes after President Trump met with a group of Swiss billionaires and corporate executives at the White House last week, which prompted Trump to direct Trade Representative Jamieson Greer to facilitate talks with his Swiss counterparts. Many are optimistic that a deal will be finalized in the coming weeks, though past negotiations fell apart. President Trump also emphasized that he had not “said any number” when asked about reports that he may match the 15% EU rate.