Rates Tick Higher as Global Equity Markets Recover

Flash Update: US RATE MARKETS – FRIDAY OCTOBER 16, 2026

• US Treasury yields and SOFR swap rates are a touch higher this morning on the short end of the curve, and up a few basis points on the long end, as the AI-spurred flight-to-quality stalled and equity markets recovered

• A rebound in equity markets yesterday coupled with increasing fear of higher inflation are the main culprits behind higher rates this morning

• Growing market uncertainty and the myriad market forces at work portend elevated levels of rate volatility for the near term

• Speaking in Thailand last night, FOMC Chair Warsh made no remarks on monetary policy or his outlook for the US economy, apart from reiterating that the Fed will deliver “price stability”

• Despite this week’s hot inflation data, Chair Warsh chose not to reiterate the hawkish case from his Jackson Hole speech 

• Market participants pared their bets for a rate hike on October 28th after Warsh's remarks, with the odds dropping below 15%

• The US-Iran conflict and the price of crude oil, and resultant fear of higher inflation continue to be a primary focus for the rate markets

• AI-sector performance and the path forward for the FOMC will also continue to captivate markets

• The next FOMC rate decision is due Wednesday, October 28th at 2:00 PM

• Fed officials enter the pre-meeting “quiet period” beginning tomorrow, 10/17; Up next: Chair Warsh’s post-meeting press conference on 10/28

• Short-term SOFR swap rates are trading up ~1-3 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~4-5 bps currently, depending on tenor

• Long-end SOFR swap rates are trading up ~3-5 bps this morning, depending on tenor

Good morning – US Treasuryyields and SOFR swap rates are a touch higher on the short end of the curve and up a few to a handful of basis points on the long end. A recovery in global equity markets yesterday, coupled with the red-hot inflation data we saw this week was enough to stop the flight-to-quality we witnessed yesterday. “Tepid” comments by FOMC Chair Warsh overnight helped to reduce Fed rate hike odds for October – Warsh did not sound like a man ready to hike rates again in October. He pointedly refused to reiterate the hawkish case from his Jackson Hole speech. The market view has now firmly shifted to a rate “hold” at the October Fed meeting.

The inflation threat, I believe, is mostly priced into the curve – traders are simply unsure on when the next rate hike will happen. Yes, I do think rates are still susceptible to higher oil prices, but markets seem to be absorbing that volatility, at least for now. Given the surprise AI earnings disappointments this week, AI performance will remain a market focus. We got a taste of what a sudden, rapid deterioration in the equity markets, particularly the AI/Tech sectors, can do to rates. Should we see another equity rout, rates are likely to move lower as traders take haven. However, traders are clearly still petrified about higher inflation – we have seen that proven again this week – the flight-to-quality was a temporary reallocation. Once it was “resolved”, the focus immediately shifted back to inflation and the Fed.

Expect the elevated levels of volatility we saw this week to continue, particularly on the medium-and-long-end of the curve. Short end rates are likely to remain focused on the upcoming Fed rate decision. As mentioned, odds for a rate hike in October have dipped to under 15%. Additionally, although we do see plenty of secondary economic data prior to the Fed meeting, virtually all the “key” economic data has already been released for the month. Next up for key data are PCE, Personal Income and Personal Spending, which are due on 10/29, a day after the Fed wraps-up their October meeting.

CHARTS OF THE DAY:

A: It’s Been a Long, Volatile Week for Traders…

Source: Bloomberg, LLP | 10Y UST NOTE YIELDS MOVEMENTS THIS WEEK

B: Markets Swing Back Towards a Fed “Hold” In October 

Source: Bloomberg, LLP | OCTOBER FED RATE HIKE ODDS SINCE THE SEPTEMBER FOMC MEETING

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading up ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1-3 bps. 5Y and 10Y SOFR swap rates are trading up ~4-5 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently trading up ~3-5 bps from yesterday’s closing levels.

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.Developments in the US/Iran “war” will continue to captivate the market’s attention. l

• Lack of forward guidance from the Fed is forcing traders to pay more attention to economic data – this may fundamentally change the way markets position for and react to Fed rate decisions going forward.

• There is still a sharp focus on the performance of the growing AI sector and more broadly, on what AI really “means” for the US and global economies. Overall market sentiment, and perhaps even economic performance, may be impacted by AI for the foreseeable future.

• Tariffs remain in focus, particularly the “trade war” situation between the US and Canada. US/China relations are always in focus.

CHART 1:US RATES SNAPSHOT: 9:00 AM Eastern

Chart 1 Key:

• Far Left Columns:US Treasury Yields & Change on Day (bps)

• Center Columns:SOFR OIS Swap Spreads (bps) & Change on Day (bps)

• Far Right Columns:SOFR OIS Swap Rates & Change on Day (bps)

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:00 AM NY Rates Snapshot

CHART 2 & 2A: SOFR SWAP RATES EDGE HIGHER AS EQUITY MARKETS RECOVER; SWAP RATES, CAP PREMIUMS LOWER WEEK-ON-WEEK

SOFR swap rates are moving a touch higher this morning, particularly on the inflation sensitive long end of the curve. A global equity market “recovery” yesterday eased market jitters and stalled the flight to quality spurred by the AI earnings rout. I expect volatility and market uncertainty to remain elevated. Week-on week, SOFR swap rates are lower, which has provided some small relief for cap premiums.

US-IRAN WAR IMPACT: Key SOFR Swap Rate Movements Since the Onset of the US-Iran War  

• The 1-Year SOFR swap rate closed at 3.42% on Friday 2/27/2026 – it is currently trading at ~4.493%(+107.3 bps)

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27/2026 – it is currently trading at ~4.627%(+141.7 bps)

• The 3-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.650%(+143.0 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.649%(+142.9 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.732%(+121.2 bps)

CHART 2:SOFR OIS Swap Rates – Prior 12-Months

Source: Bloomberg, LLP | 1Y (gold line), 2Y (violet), 3Y (orange), 5Y (blue) and 10Y (white) SOFR ANNUAL OIS SWAP RATES; Year-To-Date 2026

CHART 2A:US Treasuries: Yield Overview – Prior 6-Months

Source: StreetStats | US Treasury Yields – Prior Six Months

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing in the Rates & Derivatives Markets

The market is once again facing tremendous uncertainty surrounding the path forward for interest rates. Borrowers should be as nimble as possible in this market environment. Cap purchasers should onboard as quickly as possible – there is no cost to onboard. It is important to be in a position to take advantage of market opportunities quickly and efficiently.

There is an increasing interest in exploring interest rate swaps as a possible hedge alternative. IR Swaps lock in a synthetic fixed rate and do not require an upfront premium. Unlike an interest rate cap, however, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. It is often challenging to place a swap away from the lender or incumbent relationship bank. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. With the uptick in swap rates recently, we are also seeing an increase in swap termination requests. Please let us know if you would like to learn more about interest rate swaps, or swap terminations. RCA offers a full range of Derivative Advisory services.

Given the high-level of uncertainty surrounding forward rates, many clients are grappling with when or if to extend. This is a difficult question – our advice has been to monitor the market closely and be on-boarded and ready to trade, should the market move in your favor. We also advise borrowers to check the market pricing for extensions. Market price discovery is a key component to any cap transaction – new caps, extensions, or terminations.

We are still seeing some residual demand for interest rate floor indications – to offset high loan floors or simply to benefit from declining variable rates. Borrowers who have “floors” embedded in their loans have been considering purchasing a separate, stand-alone interest rate floor to offset the loan floor.

Interest Rate Cap Hub: Cap Pricing & Rate Volatility Update for 10/16/2026

• Current 1-Month SOFR = 3.97183% (Prior Day’s Reset: 3.93260%)

• Due to a drop in SOFR swap rates, cap premiums close out the week lower (see below premium matrix)

• Rate volatility ticked higher this week to the whipsaw movement in swap rates we witnessed this week

• Market uncertainty surrounding the path forward for interest rates remains elevated

Cap Pricing Matrix:1-Month Term SOFR Cap Premiums: Week-On-Week

*Indications as of Market Open. Premium levels provided are indications only and subject to frequent change.

CHART 3:Historical Volatility: MOVE Composite US Treasury Yield Volatility Index – Year-To-Date 2026

Source: Bloomberg, LLP | HISTORICAL US TREASURY YIELD VOLATILITY, “MOVE” INDEX – YTD 2026

^NOTE:RATE MARKETS CAN BE VOLATILE - MARKET DYNAMICS AND PRICING CAN CHANGE VERY QUICKLY IN THIS MARKET ENVIRONMENT.

**WE RECOMMEND YOU CALL US FOR ACCURATE, UP-TO-THE-MINUTE CAP INDICATIONS.**

Please contact us if you would like to discuss an upcoming rate cap or rate cap extension, explore ways to reduce or eliminate escrow deposits for replacement caps or learn more about interest rate Caps, Floors, Swaps or Swaptions. RCA can also assist you with the voluntary early termination of your cap or swap.

HedgeWithAnEdge-TheRCAEdge!

Disclaimer: The information provided in this communication is intended for discussion purposes only. Nothing presented in this communication should be taken as a recommendation or forecast. All market data shown is indicative only and subject to change depending on current market conditions. The information in this publication is confidential and is intended for the recipient only.