Rates Drift Higher as an Anxious Market Monitors War Developments

Flash Update: US RATE MARKETS – MONDAY APRIL 20, 2026

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

• Oil and natural gas prices rose after the US Navy seized an Iranian ship during a chaotic weekend

• Additionally, Iran fired at vessels and reimposed controls in the Strait of Hormuz, dampening hopes that a negotiated settlement was close

• As a result, Iran has hesitated on whether to send diplomats to Pakistan for the next round of talks with the US

• In contrast, US President Trump said that he saw a “chance for a deal”

• Market participants, overall, remain optimistic that a “longer-term” peace plan is in the works

• However, 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 up ~1 bp this morning, depending on tenor

• Medium-term SOFR swap rates are up ~1 bp currently, depending on tenor

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

Good Morning – US Treasury yields and SOFR swap rates are drifting a touch higher this morning, as market participants pause to gauge progress in US/Iran diplomatic efforts. Rates are generally having a muted response to recent developments in the US/Iran war, despite a chaotic weekend that saw tensions elevated and traffic once again halted through the Strait of Hormuz. Traders and investors remain cautious, but optimistic. There is still a general sentiment in the market that a diplomatic resolution will be reached in the near term, so I think traders are being careful not to overreact to headlines and rumors. They have learned to ignore the ever-changing rhetoric from both sides and wait for the actual results. For the short-term, market participants ideally want to see the Strait of Hormuz re-opened as soon as possible. That would help to nudge rates lower as energy markets settle and stabilize. That said, there is still a ton of uncertainty surrounding the ultimate outcome, and impact, of this conflict.

War developments and the associated “headlines” will continue to be the primary market catalysts for the near 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 rise. 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.

Tomorrow, we will see March Retail Sales released at 8:30 AM. Expectations are calling for a monthly increase of 1.4%, vs. a gain of 0.6% in February. The number is not likely to have a dramatic impact on rates. However, as the consumer sales data will reflect a “war impact month”, traders and investors will be paying close attention to the results. A weak number could help nudge rates lower; conversely a stronger-than-expected result could help soothe markets and rates would likely remain static, or perhaps, drift a bp or two higher. The war is still the primary focus for market participants.

“Key News” the market is tracking includes:

• The hearings to confirm the next FOMC Chairman, Kevin Warsh, are set to begin. Warsh will have the opportunity to map out his plans to “remold” the world’s most important central bank when he testifies Tuesday before the Senate Banking Committee. His testimony will come against the most politically charged backdrop for the central bank in decades. Stay tuned!

• 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. President Trump has stepped-up his anti-Powell rhetoric and threats recently, leading to speculation Chairman Powell may not go quietly into the night when his term as Chairman ends in May. Expect the Fed “drama” to intensify in the coming weeks. The impact on markets is currently uncertain.

• 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 increasingly concerned with the record-setting “partial” government shutdown currently underway. Traders are still hoping the situation is resolved quickly.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading flat to up ~1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading flat to up ~1 bp. 5Y and 10Y SOFR swap rates are trading up ~1 bp on the day. The very back-end of the swap curve is currently trading up ~1 bp from Friday’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, 2B & 2C: SOFR SWAP RATES DRIFT A TOUCH HIGHER AS US/IRAN TENSIONS SIMMER

SOFR swap rates are drifting a touch higher this morning as diplomatic efforts to end the war stall and tensions simmer. 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 will lead to a bias toward lower rates; conversely, factual news that diplomatic efforts are stalled, failing, or may drag on indefinitely, will likely shift the bias toward higher rates. 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 ~3.55%(+34 bps). The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.56%(+34 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 ~3.82%(+30 bps).

CHART 2:Short-End SOFR Swap Rates – Since 3/10/2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES, SINCE MARCH 10, 2026

CHART 2A:Long-End SOFR Swap Rates – Since 3/10/2026

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

CHART 2B:US Treasuries: Yield Overview Since October 2025 – Diplomatic Efforts Lead to Lower Rates

Source: StreetStats | US Treasury Bill, Note & Bond Yields; 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 4/20/2026

• 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 from recent highs

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

• Current 1-Month Term SOFR = 3.65719% (Prior day: 3.66101%)

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.