Rates Drift Higher on War-Induced Inflation Fears

Flash Update: US RATE MARKETS – MONDAY MARCH 9, 2026

• UST yields and SOFR swap rates are drifting higher this morning as a surge in oil prices fans global inflation fears

• As the conflict intensifies, the Middle East war remains the primary market catalyst

• Fear that the Iran “situation” will lead to prolonged global production disruptions and sustained higher oil prices is resulting in dramatically higher inflation expectations

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

• Next up for key data: February CPI data prints on Wednesday, March 11, 2026 @ 8:30 AM

• Short-end SOFR swap rates are trading up ~2-4 bps this morning, depending on tenor

• Long-end SOFR swap rates are currently up ~1-2 bps, depending on tenor

Good Morning – US Treasury yields and SOFR swap rates are edging higher this morning as energy prices continue to rise as a result of the war in the Middle East. Crude oil topped $100 per barrel this morning, and widespread production disruptions continue to disrupt the global energy supply chain. The surge in oil prices currently shows no signs of abating. I expect the conflict to remain the primary market catalyst this week.

Rates did drop on Friday after weaker-than-expected economic and jobs data prompted traders to rekindle hopes for a June or July rate cut. Well, that’s pretty much off the table – as of this morning, traders do not expect the next rate cut until September. As such, the Fed-sensitive short-end is the most volatile part of the curve this morning. Implied rate volatility has also moved materially higher since Friday, as the outlook for the war becomes even more uncertain. The jump in volatility is making cap premiums more expensive.

Regarding the war in the Middle East, the conflict continues to intensify. The news continues to come fast and furious, so I expect the market to continue to be headline driven this week. The war in the Middle East is likely to remain the primary market catalyst until it is resolved, and resolved decisively. As such, uncertainty surrounding the duration, intensity and impact of the conflict remains extremely elevated.

Market participants will continue to nervously monitor the latest war developments. The underlying 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 oil prices surge for a sustained amount of time.

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 ~3-4 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~2-4 bps. 5Y and 10Y SOFR swap rates are trading up ~1-2 bps on the day. The very back-end of the swap curve is currently trading up ~1-2 bps from yesterday’s closing levels. Expect increased levels of rate volatility today.

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: SOFR SWAP RATES MOVE HIGHER AS INFLATION FEAR DRIVES MARKET

SOFR swap rates are ticking higher again this morning as the war in the Middle East intensifies. Rates are moving higher as energy market led inflation fears continue to dominate the market. I expect rates to remain biased higher as long as “oil fears” dominate the market. The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~3.41% (+20 bps). The 10-year SOFR swap rates has experienced a similar move – it closed Friday night at 3.52% and is currently trading at ~3.69% (+17 bps).

In short: The short-end of the swap curve is rising due to reduced Fed rate cut expectations directly attributable to the spike in oil prices and the associated inflation risk, which in turn can impact monetary policy decisions. The long-end of the swap curve is rising on war-related inflation fears. Due to the high level of market uncertainty, I expect those scenarios to be the market bias for the near term.

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: GLOBAL MARKETS ARE LASER-FOCUSED ON ENERGY MARKETS

Oil prices continue to rise as the deepening war in the Middle East sparked fresh turmoil in energy markets. Oil topped $100 per barrel for the first time since 2022. The conflict has also upended the outlook for interest rates – given the turmoil it has been difficult for market participants to reach a consensus outlook. Investors appear to be bracing for a prolonged conflict, suggesting the oil “spike” may be sustained.

The oil-related surge in inflation expectations comes a time when there seems to be cracks appearing in the US labor market. Recent data showed an unexpected increase in layoffs and higher unemployment. Rising inflation and weaker economic conditions (including the labor market) points toward a “stagflationary” environment.

CHART 3:Spike In Crude Oil Prices Drives Rates Higher As Inflation Concerns Deepen

Source: Bloomberg, LLP | CRUDE OIL PRICES SINCE 2022

CHART 3A:Global Rates Rise On War-Induced Inflation Worries

Source: Bloomberg, LLP | GLOBAL 2-YEAR BOND YIELDS SINCE 1/4/2026

CHART 3B:Oil Over $100 A Barell Can Materially Impact Inflation And Economic Growth

Source: Bloomberg, LLP | ESTIMATED IMPACT OF OIL AT $108.00 PER BARREL – US, UK, EURO-AREA

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 3/9/2026

• Cap premiums continue to increase due to higher SOFR swap rates and volatility

• Rate volatility has ticked higher due to the Middle East conflict

• Current 1-Month Term SOFR = 3.66736% (Prior day: 3.66908%)

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.

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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.