Rate Markets Update · Friday, March 20, 2026
Rates Move Higher as War-Related Inflation Fear Mounts
Flash Update: US RATE MARKETS – FRIDAY MARCH 20, 2026
UST yields and SOFR swap rates are moving higher this morning as the ongoing war in the Middle East continues to fan inflation fears
Fed officials are back ‘on-the-tape’ today as they emerge from the “communications blackout”
Market participants will be eager to hear what Fed officials have to say about the FOMC meeting, dot-plot, SEP and impact of the war
The market reaction to the SCOTUS “tariff ruling” has been largely muted as traders await more details and information
Traders will continue to track volatile equity markets, specifically the technology and AI sectors
Market participants will continue to monitor developments with the DOJ investigation into the US Central Bank
The war in the Middle East remains the primary focus for the rate markets
The next FOMC rate decision is due Wednesday, April 29th at 2:00 PM
Short-term SOFR swap rates are trading up ~6-8 bps this morning, depending on tenor
Medium-term SOFR swap rates are up ~5-7 bps currently, depending on tenor
Long-end SOFR swap rates are down ~2-4 bps this morning, depending on tenor
Good Morning – US Treasury yields and SOFR swap rates are moving higher this morning, as the conflict in the Middle East intensifies. More importantly for traders, the conflict shows few signs that a resolution is in sight. Market participants continue to grapple with a conflict that has upended energy supply chains and reignited fears over inflation. Overnight, Iran intensified attacks against its Gulf neighbors, and traffic through the energy market-critical Strait of Hormuz remains at a virtual standstill. It feels to me as though market participants are finally coming to grips with the fact that the conflict will not be resolved quickly.
The market friction between potential higher inflation and potential damage to economic growth will continue to grow as long as the war rages on. A spike in energy prices continues to weigh on markets and drive short-term inflation forecasts higher. At the moment, inflation concerns are outpacing growth concerns, hence higher rates. The short-end of the curve remains particularly vulnerable to the upside, as a repricing of Fed rate cuts is also helping to nudge short-term rates higher.
Market participants will continue to nervously monitor the latest war developments. War developments and “headlines” will continue to be the primary market catalysts for the near term.The longer the war drags on and oil prices remain elevated, the greater the threat to global economic growth and inflation. Right now, it is clear that inflation fears are outpacing economic growth fears.
News the market is tracking includes:
Geopolitical developments continue to weigh on market sentiment.The US/Iran “war” will likely dominate market sentiment this week. The end result of the US attack on Iran is difficult to forecast at this time. Currently, the major impacts thus far have been higher oil prices, higher rates, and a surge in geopolitical tensions.
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, 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 continue to closely track developments in the US equities markets. 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. US political developments will remain a major focus for the market for the foreseeable future.
Traders and investors continue to assess the market implications of the recent SCOTUS ruling on President Trump’s tariffs. Market participants await more data and information.
Market participants are growing more and more concerned with the ongoing “partial” government shutdown. Traders are hoping the situation is resolved quickly – a full government shut-down would be extremely challenging to manage during a war.
SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~6-7 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~7-8 bps. 5Y and 10Y SOFR swap rates are trading up ~5-7 bps on the day. The very back-end of the swap curve is currently trading down ~2-4 bps from yesterday’s closing levels.
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: 9:15 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 | 9:15 AM NY Rates Snapshot
CHART 2 & 2A: SOFR SWAP RATES MOVE HIGHER AS WAR-RELATED INFLATION FEARS MOUNT
SOFR swap rates are moving higher this morning, as the ongoing war in the Middle East continues to stoke inflation fears. It feels like the market expected a short duration conflict – as we know that has not happened. War-related inflation fears will continue to weigh heavily on markets – that, in turn, will continue to keep upward pressure on swap rates.
I would advise staying nimble in this market. If the war is unexpectedly resolved quickly (say, in the next week or two), we are likely to see rates drop, and drop quickly, as inflation forecasts come back in line. The longer the conflict drags on, however, the more time it will take for the rate markets to stabilize.
Traders and market participants will continue to anxiously monitor developments in the Middle East crisis – I still expect rates to remain asymmetrically biased higher as long as “oil fears” dominate the market.
Key Swap Rate Movement Since The War Began:The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~3.71% (+50 bps). The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.64% (+42 bps). The 10-year SOFR swap rates has experienced a similar move – it closed Friday 2/27 at 3.52% and is currently trading at ~3.84% (+32 bps).
CHART 2:Short-End SOFR Swap Rates – Prior 10 Days
Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES, PRIOR 10 DAYS
CHART 2A:Long-End SOFR Swap Rates – Prior 10 Days
Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES, PRIOR 10 DAYS
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