Rates Edge Lower as US Presses for Negotiations with Iran

Flash Update: US RATE MARKETS – WEDNESDAY MARCH 25, 2026

• UST yields and SOFR swap rates are edging lower this morning, as market participants assess the war outlook

• Traders continue to grapple with a range of possible outcomes for the war in the Middle East

• US officials are ramping up diplomatic efforts to end the war

• According to news reports, the US drafted a 15-point plan to help bring the conflict to a close; Sources say that proposal was delivered to Iran via Pakistan

• Iran continues to rebuff US attempts to negotiate a settlement to the conflict; Iranian attacks in the region continue and they have apparently rejected a US ceasefire proposal

• Crude oil prices moved a touch lower overnight (~5.0%), leading to slightly lower rates this morning

• 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 down ~1-3 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1-3 bps currently, depending on tenor

• Long-end SOFR swap rates are down ~1-3 bps this morning, depending on tenor

Good Morning – US Treasury yields and SOFR swap rates are moving slightly lower this morning, as market participants hold out hope that US diplomatic efforts aimed at negotiating a resolution to the conflict will come to fruition. News source are reporting that the US reached out to Iran via Pakistan with a 15-point plan aimed at ending the conflict. However, Iranian officials continue to steadfastly deny that any diplomatic contact between the US and Iran has occurred. Overnight Iran continued attacks on Israeli targets and its Gulf neighbors. The conflicting “war messaging” is confusing market participants and increasing uncertainty about the “real” status of the conflict. That said, the market is latching on to the “negotiations” rumor, hence slightly lower oil prices and slightly lower rates this morning. I anticipate that the direction of rates will be closely correlated to the direction of oil prices in the near term. Until we get a concrete, verifiable resolution, war developments and the associated “headlines” will continue to be the primary market catalysts for the near term.

I advise staying nimble if you have upcoming caps or swaps to execute – market dynamics may change quickly as developments unfold. Rates will likely remain biased higher as long as the dislocation in the energy markets continues to fan inflations fears. That said, it feels like we are approaching a turning point in the conflict – if the war is favorably resolved in the next few days (or week) we could see rates drop, and drop dramatically. Regardless of which way the conflict outcome leans, we are likely to continue to see elevated levels of rate volatility as the market absorbs war developments and news headlines. For the time being, market participants will continue to anxiously monitor the latest war developments. It feels like the general market feeling is that “we are not out of the woods just yet”, so I expect market anxiety and uncertainty to remain at elevated levels.

News the market is tracking includes:

• Geopolitical developments continue to weigh on market sentiment.The US/Iran “war” continues to dominate market sentiment this week. The end result of the US attack on Iran is difficult to forecast at this time.

• 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 down ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~1-3 bps. 5Y and 10Y SOFR swap rates are trading down ~1-3 bps on the day. The very back-end of the swap curve is currently trading down ~1-3 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: 9:00 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 | 9:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK LOWER AS MARKET PARTICIPANTS ASSESS WAR OUTLOOK; CRUDE OIL PRICES DIP

Diplomatic efforts by the US pushing for negotiations with Iran are sending rates a touch lower this morning. Optimism that negotiations between Iran and the US will lead to a quicker-than-expected resolution of the war is slowly growing, leading to slightly lower oil prices, and slightly lower rates. However, market participants seem unwilling to go too far – the hope of a diplomatic solution is at best, a fragile hope, and at worst, a pipedream. We are likely to be subject to elevated levels of rate volatility as the diplomatic process unfolds. Should a resolution be reached quickly, we could see rates drop dramatically as the market corrects. However, make no mistake – should negotiations collapse, or lead nowhere, the conflict could reach a new level of intensity. In that case, there is plenty of room for rates to move higher from here.

Today’s charts detail the movement in swap rates since the beginning of the war in the Middle East. You can see the massive rate move we have experienced since the conflict began. Yes, we have seen some very slight relief this week as the negotiation rumors swirl, but we are still significantly above pre-war swap levels.

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 ~3.695% (+48.5 bps). The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.65% (+43 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 ~3.865% (+34.5 bps).

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:Oil Prices Dip As US Ramps Up Diplomatic Efforts To End Conflict

Source: Bloomberg, LLP | BRENT CRUDE OIL FUTURES SINCE APRIL 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 3/25/2026

• Cap premiums are higher since the war began, due to a material increase in SOFR swap rates and higher rate volatility

• Rate volatility has ticked significantly since the onset of the Middle East conflict

• Current 1-Month Term SOFR = 3.68065% (Prior day: 3.67855%)

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

*Indications as of market open. Premium levels provided are indications only and subject to change.

^NOTE: 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.