Rates March Higher as Inflation Fears Dominate Market Sentiment

Flash Update: US RATE MARKETS – TUESDAY MARCH 3, 2026

• UST yields and SOFR swap rates continue to march higher as global inflation fears surge

• Fears that the Iran “situation” will lead to production disruptions, higher oil prices and higher inflation are dominating the market

• The US/Iran conflict is likely to dominate market sentiment for the near term – this is a developing story with global implications

• The market reaction to the SCOTUS “tariff ruling” has been largely muted as traders await more details and information

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

• Next up for key data: January Retail Sales data is released on Friday, 3/6 at 8:30 AM

• Short-end SOFR swap rates are trading up ~5-8 bps this morning, depending on tenor

• Long-end SOFR swap rates are currently up ~4-8 bps, depending on tenor

Good Morning – US Treasury yields and SOFR swap rates continue to march higher this morning, as global inflation fears sparked by the ongoing Middle East conflict are outpacing a flight-to-quality. The 2-year SOFR swap rate closed at 3.21% on Friday – it is currently trading at 3.37% (+16 bps). The 10-year SOFR swap rates has experienced a similar move – it closed Friday night at 3.52% and is currently trading at ~3.66% (+14 bps).

A surge in oil prices has led to fears inflation will rise, perhaps quickly and perhaps significantly. The renewed and sudden inflation threat is forcing traders to rethink Fed rate cut expectations, and it is pushing Treasury yields higher. Rates across the curve are likely to be biased higher until the oil market stabilizes. Right now, fear and uncertainty continue to dominate the rate markets. Market participants will continue to nervously monitor the latest developments. The growing market fear is that the conflict in the Middle East will lead to a full-blown “energy crisis”, where global production is severely impacted and prices surge.

A key focus for traders today is what happens in the Strait of Hormuz, a narrow waterway off the coast of Iran that carries about a fifth of global oil supply. Iran has vowed to disrupt passage through the Strait of Hormuz, which could further disrupt the global oil infrastructure. The conflict intensified overnight, so there is no end in sight for this conflict at the moment.

There is definitely the possibility for whip-saw movements in rates this week, and I anticipate volatility will remain at elevated levels. Rates are likely to be biased higher until the oil market stabilizes.

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. Traders are watching for signs of another potential government shutdown. US political developments will remain front-and-center 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.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~5-6 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~7-8 bps. 5Y and 10Y SOFR swap rates are currently trading up ~6-8 bps on the day. The very back-end of the swap curve is currently trading up ~4-6 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: 9:30 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 | 9:30 AM NY Rates Snapshot

CHART 2 & 2A: SOFR SWAP RATES MOVE HIGHER AS MIDDLE EAST CONFLICT IGNITES INFLATION FEARS

SOFR swap rates are again moving higher this morning on fears that the Middle East conflict could dramatically increase oil prices and lead to a spike in global inflation. As we know, when the Middle East is in conflict, all eyes shift to the impact on oil production and oil prices. If stability returns to the region quickly, and oil production and price pressures abate, we may still see a flight-to-quality led drop in rates. It is simply too early in the conflict to predict a likely outcome. I do expect rates to be biased higher as long as “oil fears” dominate the market. Right now, with oil markets and the Middle East in turmoil, I expect rates to remain biased higher this week and likely beyond.

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

CHART 3, 3A & 3B: MARKET NERVOUSLY MONITORS ENERGY MARKETS

Crude oil prices surged as tanker traffic all but halted through the Strait of Hormuz and a big refinery in Saudi Arabia halted production due to the escalating conflict in the Middle East. The conflict is threatening supplies in one of the world’s key producing regions, with the Strait of Hormuz handling a fifth of the world’s oil and a similar portion of liquefied natural gas (LNG). The surge in energy costs risks boosting inflationary pressures globally, complicating the task facing global central bankers.

Oil prices surged for a second day as the conflict intensified throughout the region. The conflict's impact on energy assets in the Persian Gulf continues to grow. This morning, Brent crude oil prices surge above $85.00 a barrel for the first time since July 2024. Rising energy prices are already casting a pall over global economic growth prospects and the ability of central banks to keep inflation in check.

CHART 3:All Eyes On Strait Of Hormuz

Source: Bloomberg, LLP | STRAIT OF HORMUZ OIL & LNG DATA

CHART 3A:Hormuz Vital To Global Oil Supply 

Source: Bloomberg, LLP | HORMUZ OIL TRAFFIC DETAILS

CHART 3B:Oil Prices Surge As Middle East Conflict Intensifies

Source: Bloomberg, LLP | CRUDE OIL PRICES SINCE MARCH 2024

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 3/3/2026

• Cap premiums have moved higher this week due to higher SOFR swap rates

• Volatility has ticked higher due to the Middle East conflict

• Current 1-Month Term SOFR = 3.66415% (Prior day: 3.66727%)

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.

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.

Hedge With An Edge - The RCA Edge!

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.