2026-10-05XQuote

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"With the 2-year SOFR swap spread at minus 14.55 basis points and the 5-year spread at minus 29.10 basis points, swap fixed rates sit below Treasury yields, reinforcing the market’s expectation of lower future overnight rates."

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SOFR Swaps Say the Fed Will Cut. When Will the Bond Vigilantes Notice? The swap market has been signaling Fed cuts, not a durable higher-for-longer regime. A swap spread is simply the difference between the fixed rate in a SOFR interest-rate swap and the yield on a same-maturity Treasury. With the 2-year SOFR swap spread at minus 14.55 basis points and the 5-year spread at minus 29.10 basis points, swap fixed rates sit below Treasury yields, reinforcing the market’s expectation of lower future overnight rates. The 5-year SOFR swap market never substantiated the higher-for-longer narrative. It has instead priced a Fed that cuts rates and keeps the average policy rate lower over the next five years than Treasury yields alone imply. When will the bond vigilantes look at the swaps market?
DrJStrategy ↗