Market Has Muted Reaction to "Mixed" Economic Data

Flash Update: US RATE MARKETS – FRIDAY FEBRUARY 20, 2026

• UST yields and SOFR swap rates are holding MOSTLY steady this morning as traders shrugged-off “mixed” economic data

• Advanced Q4 GDP printed at 1.4%, materially missing expectations calling for 2.8%

• December PCE, however, posted higher-than-expected, signaling inflation remains “sticky” and may be poised to move higher

• Traders continue to monitor geopolitical developments; US/Iran tensions are once again a focus for the market

• Escalating tensions between the US and Iran are pushing crude oil prices higher and adding to market uncertainty

• Market participants will continue to monitor developments with the DOJ investigation into the US Central Bank

• There are some news sources saying that A SCOTUS ruling on tariffs could come as early as today…stay tuned!

• The next FOMC rate decision is due Wednesday, March 18, 2026 at 2:00 PM

• Next up for key data: January PPI data prints on Friday, 2/27 at 8:30 AM

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

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

Good Morning – US Treasury yields and SOFR swap rates are holding mostly steady this morning. Despite the “hype” preceding today’s key economic data releases, the actual numbers had little impact on rates. In short, Q4 GDP significantly missed expectations, and December PCE was higher-than-expected. The conflicting economic growth and inflation figures are making it tough for traders to decide how to position. The weaker-than-expected GDP data gives the Fed room to cut rates further, particularly if the labor market continues to cool-off. The higher-than-expected PCE data, however, makes a solid case to hold-off on any additional rate cuts. I also think that despite the GDP miss, the 1.4% growth rate is still solid, and overall, the US had one of the strongest economic performances in years during 2025.

Bottom line, I think the Fed stays on the sidelines until they can assess what is the greater risk – slower economic growth and a cooling jobs market, or higher inflation. It may take the Fed a few more data series to make that decision.

Traders will continue to keep a close eye on geopolitical developments and on the important SCOTUS rulings that are expected to come sooner rather than later – perhaps as early as today. The pending SCOTUS rulings are a wildcard for the market and could certainly provide a catalyst for increased rate volatility.

News the market is tracking includes:

• Geopolitical developments continue to weigh on market sentiment. Tensions between Iran and the US are once again escalating, pushing crude oil prices higher and adding to the market’s fear and uncertainty.

• There are news sources reporting this morning that the Supreme Court ruling on President Trump’s tariffs could be released as early as today. The SCOTUS ruling could definitely have market implications. Economists are unsure about the market impact of the decision – either way, the ruling is a potential catalyst for elevated rate volatility.

• SCOTUS is also currently ruling on the legality of the President firing of the Fed’s Lisa Cook. There are some reports stating that SCOTUS is nearing a final decision on that case as well, which could have far reaching implications for the US Central Bank.

• The US Justice Department investigation into the US Central Bank and Chairman Powell will remain a key market focus moving forward.

• Market participants will be tracking developments in the US equities markets closely. There is still a sharp focus on the performance of the growing AI sector. Market sentiment is likely to be impacted by “tech” earnings for the foreseeable future.

• The market continues to monitor US political developments, specifically with respect to budget negotiations. Traders are watching for signs of another potential government shutdown. As we have witnessed recently, government shutdowns can impact the timely release of economic data, which makes it difficult for traders to position. US political developments will remain front-and-center for the market for the foreseeable future.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1-2 bps. 5Y and 10Y SOFR swap rates are currently trading up ~1 bp on the day. The very back-end of the swap curve is currently trading flat to up ~1 bp from yesterday’s closing levels. Rates have barely moved this morning.

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

CHART 1:US RATES SNAPSHOT: 10:00 AM Eastern

*For SOFR Swap Rates & Change-On-Day (In Bps): Refer Two Far Right Columns (SOFR Swap Rates)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 10:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SWAP RATES STEADY AS MARKET HAS MUTED REACTION TO ECONOMIC DATA

SOFR swap rates are holding mostly steady this morning – they are trading very close to unchanged across the curve – maybe a bp or two higher on the short-end. I think the inflation data is “sinking in” a bit, and traders are probably going to rethink that third rate cut this year – at least for the time being. Overall, SOFR swap rates remain range bound.

Swap traders will continue to monitor economic and inflation data as the market seeks direction. At the moment, it feels like traders think we are at the “right levels”, although a heightened degree of uncertainty is still palpable in the market.

Keep an eye on crude oil prices – they are at six-month highs, which is getting increased attention from the market. That “attention” is likely to remain as long as US/Iran tensions remain escalated.

CHART 2:Short-End SOFR Swap Rates – Prior 30 Days

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES, PRIOR 30 DAYS

CHART 2A:Long-End SOFR Swap Rates – Prior 30 Days

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES, PRIOR 30 DAYS

CHART 2B:Traders Watch Crude Oil Prices As US/Iran Tensions Simmer

Source: Bloomberg, LLP | US BRENT CRUDE OIL FUTURES PRICES SINCE JULY 2025

CHART 3, 3A & 3B: ECONOMIC DATA RECAP – 2/20/2026

The US economy grew less-than-expected during Q4 2025, dragged down by a record-long government shutdown, sluggish consumer spending and trade. Q4 GDP increased an annualized 1.4% in the fourth quarter of 2025, and the US economy expanded 2.2% last year. The shutdown is estimated to have subtracted ~1.0% from GDP. That said, Q4 data still caps a solid year for the US economy, which had one of the strongest growth rates in years. The GDP Price Index did notch higher to 3.6%, vs. 2.9% expected. The Fed does track that data closely, and the “3” handle on the GDP price index will likely be a red flag for the FOMC.

The slight bump in rates following today’s data indicates that traders seem to be putting more weight on the hotter-than-expected inflation data over the shutdown-impacted GDP print. Core PCE YoY jumped to 3.00%, and the MoM core PCE was 0.4%, the fastest monthly acceleration since February 2025. Parsing through the latest PCE data, food and accommodation added the most to the print, while recreation services posted a record monthly advance. From my perspective, the PCE data defintinitely keeps the inflation narrative alive.

I think the current “mixed” data and confusing narrative supports the Fed’s current “wait-and-see” monetary policy. There are simply too many variables at work to draw any firm conclusions about the path forward for interest rates this year. Stay tuned!

CHART 3:Q4 GDP & December PCE Recap

Source: Bloomberg, LLP | Q4 GDP & DECEMBER PCE RECAP

CHART 3A:Core PCE Inflation Ticks Higher

Source: Bloomberg, LLP | CORE PCE MEASUREMENTS SINCE JANUARY 2019

CHART 3B:Inflation Pressures Linger; The Fed Will Take Notice

Source: Bloomberg, LLP | INFLATION COMPONENTS SINCE MARCH 2025

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

The market is 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.

Given the uncertainty that still remains about 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, similar to how you purchased the original cap. Market pricing discovery is a key component to any cap transaction – new caps, extensions or terminations.

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, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. We are also seeing a dramatic increase in swap termination advisory requests recently, as clients contemplate refinancings. Lower rates have sparked refinancing activity, which in some cases necessitates unwinding an existing swap. Please let us know if you would like to learn more about interest rate swaps, or swap 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 2/20/2026

• Cap premiums have generally remained range bound this week

• Volatility remains relatively subdued

• Traders had a muted reaction to the data released this morning – there was little impact on cap premiums

• Current 1-Month Term SOFR = 3.67702% (Prior day: 3.66724%)

Pricing Matrix:1-Week Movement In 1-Month Term SOFR Cap Premiums

*Premium levels provided are indications only and subject to change.

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.