Rates Drift Lower as Oil Dips Below $100 per Barrel

Flash Update: US RATE MARKETS – TUESDAY OCTOBER 6, 2026

• US Treasury yields and SOFR swap rates are a touch lower this morning as oil dipped below $100 per barrel

• Comments from US Treasury Secretary Bessent also helped to nudge rates lower this morning

• Speaking about US government borrowing, Bessent said the US would start “bending that curve” with a mix of economic growth and spending restraints

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

• Interest rates are likely to continue to be highly correlated to the direction of oil prices for the near term

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

• Next up for “key” economic data: CPI prints 10/14 at 8:30 AM; PPI & Retail Sales print 10/15 at 8:30 AM

• The September FOMC meeting minutes will be released tomorrow, 10/7 at 2:00 PM

• Short-term SOFR swap rates are trading down ~1-2 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1-2 bps currently, depending on tenor

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

Good morning – US Treasuryyields and SOFR swap rates ticked a touch lower this morning, as bond yields fell from their highest levels since 2002. Rates slipped this morning as oil prices retreated below $100 a barrel and Treasury Secretary Bessent insisted the US can and will reduce the budget deficit. Secretary Bessent attempted to reassure investors that a mix of economic growth and spending restraints will “very quickly” start to alter the path of US government borrowing. This morning’s slight dip in rates marked a pause in the global bond rout that has arisen from growing “war-induced” inflationary fears and increasing bets on more aggressive tightening from the FOMC.

Overall, rates across the curve continue to sit at multi-year highs as market participants determine the path forward for interest rates. Economic data has looked solid on balance, so inflation continues to be the market’s primary concern. I also think that the odds for a Fed rate hike in October dipped for two reasons: 1. There is enough uncertainty right now that the Fed may need to see another month’s worth of economic data and 2. October is too close to the mid-term elections for the Fed to take action and they may prefer to wait until December. Odds for a 25 bp rate hike in October have dropped to ~21.6% this week, while odds for a 25 bp rate hike in December have jumped to ~84.9% including an ~17.4% chance the Fed hikes 50 bps in December.

Traders will also continue to track economic data closely as they determine what is next for the Fed. Key upcoming data: CPI is due Wednesday 10/14 at 8:30 AM. September PPI and Retail Sales results are due on Thursday 10/15 at 8:30 AM. Fed-speak is also likely to be in focus for markets as we creep towards the October Fed meeting on 10/28 – there are several Fed speakers on the tape today (see below, Chart C). I think the upcoming inflation data will be critical for setting Fed monetary policy adjustment expectations for the fourth quarter of 2026.

Rates are likely to continue to track the price of oil, and I expect the rate bias to remain asymmetrically skewed to the upside this week, and beyond. The initial reaction to the much weaker-than-expected jobs report we saw last Friday (lower rates) and subsequent abrupt and complete “reversal” (rates closed higher on the day) tells me it is going to take a major catalyst to move rates materially lower. From my perspective, that catalyst is lower oil prices and an end to the conflict in the Middle East.

CHARTS OF THE DAY:

A: Rates Remain Near Multi-Year Highs as Market Grapples with an Uncertain Path Forward

Source: Bloomberg, LLP | 10Y UST YIELD SINCE 2002

B: Oil Prices Remain Elevated, Keeping Upward Pressure on Rates

Source: Bloomberg, LLP | PRICE OF BRENT CRUDE OIL – PRIOR 12-MONTHS

B: Schedule of Fed Speeches Through October 13th

Source: Bloomberg, LLP | SCHEDULE OF FED SPEAKERS THROUGH OCTOBER 13TH

SOFR Swap Market - Quick Summary:

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

CHART 2 & 2A: SOFR SWAP RATES DRIFT LOWER AS OIL DIPS BELOW $100

SOFR swap rates are a touch lower this morning, due primarily to lower oil prices and a pledge by US Treasury Secretary Bessent that the government has plans to manage and reduce the US deficit. Overall, this is a data light week, so rates are mainly range bound – drifting a touch lower this morning, but not materially.

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 ~4.474%(+105.4 bps)

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27/2026 – it is currently trading at ~4.664%(+145.4 bps)

• The 3-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.719%(+149.9 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.760%(+154.0 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.901%(+138.1 bps)

CHART 2:SOFR OIS Swap Rates – Year-To-Date 2026

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

CHART 2A:US Treasuries: Yield Overview – Prior Six 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: Pricing & Volatility Update for 10/6/2026

• Current 1-Month SOFR = 3.91411% (Prior Day’s Reset: 3.91211%)

• Implied interest rate volatility continues to tick higher as traders expect volatile markets for the foreseeable future

• Rate volatility is now close to year-to-date highs, keeping upward pressure on cap premiums

• 1M SOFR continues to tick higher as markets anticipate tighter monetary policy going forward

• 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.

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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.