Rates Drift Lower on Growing Optimism a Diplomatic Solution to the War Can Be Reached

Flash Update: US RATE MARKETS – THURSDAY APRIL 16, 2026

• UST yields and SOFR swap rates are drifting a touch lower this morning, as traders anxiously monitor the latest US/Iran “war developments”

• Market participants appear increasingly optimistic that a “longer-term” peace plan is in the works, leading to slightly lower rates this morning

• The US continues to blockade the Strait of Hormuz, stepping up pressure on Iran to negotiate a settlement

• Both the US and Iran are weighing further negotiations to extend the ceasefire

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

• The US/Iran war remains the primary focus for the rate markets

• The next FOMC rate decision is due Wednesday, April 29th at 2:00 PM

• Next up for data: March Retail Sales data will be released on Tuesday, 4/21 at 8:30 AM

• Short-term SOFR swap rates are trading down ~1 bp this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1-2 bps currently, depending on tenor

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

Good Morning – US Treasury yields and SOFR swap rates are drifting a touch lower this morning, as market participants are encouraged by progress toward a longer-term peace deal in the Middle East. In the latest developments in the conflict, Pakistan stepped up efforts to help the US and Iran prolong a ceasefire that is set to expire next week. This is good news, but it in no way guarantees that a diplomatic solution can and/or will be reached. I think that is the primary reason rates are holding here and have not moved lower. Traders and investors remain cautious, and are being careful not to overreact to headlines and rumors. For the short-term, market participants ideally want to see the Strait of Hormuz opened as soon as possible – that would also help to push rates lower. Rates are likely to be biased slightly lower as long as the current market “optimism” holds.

War developments and the associated “headlines” will continue to be the primary market catalysts for the near term. The market will continue to be heavily “headline” driven. As we know, there are many, many rumors swirling around the market regarding how much progress is being made with diplomatic efforts to end the war. Thus far, the ceasefire is holding. The US continues to blockade the Strait of Hormuz, with the objective of stepping up pressure on Iran to negotiate. According to reports, both sides are weighing further negotiations to extend the ceasefire, perhaps long-term.

That said, uncertainty surrounding the outcome of the war remains elevated. For me it’s still the same bottom-line: progress on the diplomatic front will likely push interest rates lower and calm volatility – conversely, should diplomatic efforts prove fruitless or drag-on indefinitely, interest rates are likely to continue to push higher and volatility will remain elevated. Right now, as the war goes, so go rates.

I advise staying nimble if you have upcoming caps or swaps to execute – market dynamics can and will change quickly as war “developments” unfold.

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 bp this morning. 2Y and 3Y SOFR swap rates are currently trading down ~1 bp. 5Y and 10Y SOFR swap rates are trading down ~1-2 bps on the day. The very back-end of the swap curve is currently trading down ~1 bp 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 & 2C: SOFR SWAP RATES DRIFT LOWER AS DIPLOMATIC EFFORTS TO END THE WAR INTENSIFY

SOFR swap rates are drifting a touch lower this morning as diplomatic efforts to end the war intensify. What we are seeing today follows the primary market theme we have witnessed recently: “confirmed” news that a long-term ceasefire (or peace plan) is progressing has led to slightly lower rates; conversely, news that diplomatic efforts are failing, or may drag on indefinitely, has pushed rates a touch higher. The market is definitely waiting for clarification and direction!

We could be subject to elevated levels of rate volatility as the diplomatic/negotiation process unfolds. I still believe that, should a “real” resolution be reached relatively quickly, we could see rates drop to pre-war levels, potentially quickly and dramatically, as the energy and rate markets correct. However, make no mistake – should negotiations collapse, or lead nowhere, the conflict could ramp up again and reach a new level of intensity. In that case, there is plenty of room for rates to move higher from here.

Key Swap Rate Movements Since The US/Iran War Began:

The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~3.586% (+37.6 bps). The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.583% (+36.3 bps). The 10-year SOFR swap rate has experienced a similar move – it closed Friday 2/27 at 3.52% and is currently trading at ~3.838% (+31.8 bps).

CHART 2:Short-End SOFR Swap Rates – Since 3/6/2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES, SINCE MARCH 6, 2026

CHART 2A:Long-End SOFR Swap Rates – Since 3/6/2026

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES, SINCE MARCH 6, 2026

CHART 2B:10-Year US Treasury Note Yield Since October 2025

Source: StreetStats | 10-Year US Treasury Note Yield Prior 6-Months

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 4/16/2026

• Cap premiums are fluctuating as rates bounce around in reaction to diplomatic efforts to end the war

• Rate volatility has ticked significantly higher since the onset of the Middle East conflict, but has settled down since last week

• Cap premiums have moved lower given the recent decline in rate volatility and a slight drop in SOFR swap rates

• Current 1-Month Term SOFR = 3.66796% (Prior day: 3.66440%)

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.

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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.