Rates Tick Slightly Higher as Haven Trade Stalls

Flash Update: US RATE MARKETS – FRIDAY OCTOBER 23, 2026

• US Treasury yields and SOFR swap rates are ticking a touch higher this morning as traders wrap up a volatile week

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

• The conflict in the Middle East and the price of crude oil will continue to be a primary focus for the rate markets

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

• Odds for a 25 bp rate hike in October are currently sitting at a paltry ~10.5%; Odds for a 25 bp rate increase in December dipped slightly to ~76%

• Fed officials remain in the pre-meeting “quiet period”; Up next: Chair Warsh’s post-meeting press conference on 10/28

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

• Medium-term SOFR swap rates are up ~1 bp currently, depending on tenor

• Long-end SOFR swap rates are trading up ~1 bp this morning, depending on tenor

Good morning – US Treasuryyields and SOFR swap rates are ticking a touch higher this morning as the AI haven trade takes a breather. Rates were higher earlier this morning but settled down as we approach the equity market opening. Further gains in oil prices and a deteriorating situation in the Middle East are keeping market participants and investors cautious as we head into the weekend. Treasuries gave up some of the gains from yesterday’s dash for safety, which drove the 10-year yield down by the most in more than a year. Crude oil price movement continued to complicate the inflation outlook, with Brent crude touching its highest level since early May - ~$115 per barrel. Overall, the price of Brent crude oil is up more than 85% this year because of the US-Iran war, which is now approaching its ninth month.

I expect the cautious market sentiment to continue as we approach next week’s Fed rate decision. I still feel rates will be biased lower for the very near term – I don’t think we have witnessed the end of the AI “correction” – we could see another round or two of asset reallocation out of equities and into US Treasuries. That could push term rates materially lower, as we experienced yesterday.

Odds for a rate hike in October are holding steady at a paltry ~10.5%. Odds for a 25 bp rate hike at the December meeting are holding steady at ~76%. Most market participants believe the Fed will hold rates steady in October. Although we will see plenty of “secondary” economic data prior to the Fed meeting on 10/28, 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.

The “AI trade” outlook and the deteriorating situation in the Middle East will remain front-and-center for markets as we steam towards next week’s Fed rate decision.

CHART OF THE DAY:

A: Crude Oil Prices Remain a Major Concern for Markets

Source: Bloomberg, LLP | BRENT CRUDE OIL – WEEKLY CHANGE SINCE SEPTEMBER 2025

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading up ~1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1 bp. 5Y and 10Y SOFR swap rates are trading up ~1 bp this morning. The very back-end of the swap curve (20Y and 30Y) is currently trading up ~1 bp 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: 9:15 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 | 9:15 AM NY Rates Snapshot

CHART 2 & 2A: SOFR SWAP RATES MOSTLY STEADY AS TRADERS WRAP UP A VOLTILE WEEK

SOFR swap rates are mostly steady to slightly higher this morning, as traders wrap up a volatile, choppy week. AI performance jitters and higher oil prices are competing for the market’s attention as we steam towards the October FOMC meeting.

A growing risk off sentiment could help alleviate some of the upward pressure on rates that we have seen for a while, as traders sort out what is next for the “AI trade” that has been powering the equity markets. The issues in the equity markets portend weaker economic growth, not higher inflation.

Markets are likely to remain susceptible to “headline” risk, as traders weigh damage to economic growth against the potential for higher sustained inflation. This week, the disappointing AI sector earnings grabbed the spotlight, and traders were forced to move assets to the sidelines to avoid getting overrun, hence lower week-on-week rates across the curve.

Market uncertainty, and volatility, are likely to remain elevated for the near term.

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 ~4.406%(+98.6 bps)

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27/2026 – it is currently trading at ~4.507%(+129.7 bps)

• The 3-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.512%(+129.2 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.494%(+127.4 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.572%(+105.2 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 10/22/2026

• Current 1-Month SOFR = 3.93861% (Prior Day’s Reset: 3.93492%)

• Rate volatility ticked higher 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.