Market shifts amid U.S. Government shutdown: short-term Rates fall as uncertainty grows

With the US congress’s failure to pass funding legislation for 2026 and the resulting continued shutdown of the US Government, the third longest in US history, the financial markets have started to look to safer bets and shift attention from short-term interest-rate opportunities to longer-dated yields.

The chart below illustrates that the 1-year SOFR rate has fallen nearly 16bps since the start of the shutdown on 1st October 2025. This sharp drop in the short-end of the curve shows just how quickly political instability and policy gridlock can break short-term rate expectations.

“The market’s understanding seems clear, a continued shutdown increases the likelihood of a slowing economy, which would likely force the Federal Reserve to keep any rates cuts on hold. This situation is currently driving the interest-rate derivatives markets more than usual.” Ian Sams, Global Head of Product.

At TraditionData, with our market share leading USD SOFR data, we provide precision, real-time pricing across all USD interest rate derivatives products, providing our clients the clarity needed to navigate a shifting landscape with confidence.

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