Rates Drift Higher as Market Particpants Await Direction

Flash Update: US RATE MARKETS – FRIDAY MAY 1, 2026

• UST yields and SOFR swap rates are drifting a touch higher this morning as traders weigh the myriad forces at work in the rate markets

• SOFR swap rates have been quietly creeping back toward the “war highs”; (2Y SOFR swap rate “war-high” was 3.79%; Currently, 3.722%)

• April ISM Manufacturing & Prices Paid data will be released this morning at 10:00 AM

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

• Fear of higher war-induced inflation continues, but there is a growing fear a prolonged conflict will materially damage global economic growth

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

• Overall, market participants are still clinging to hope that a “longer-term” peace plan can be achieved in the near-term

• Next up for Key Data: The April Employment Report will be released on Friday, 5/8 at 8:30 AM

• Short-term SOFR swap rates are trading up ~1-2 bps this morning, depending on tenor

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

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

Good morning – US Treasury yields and SOFR swap rates are drifting a touch higher this morning, as traders catch their breath after a tumultuous April. The US/Iran war, economic data, direction of monetary policy and soaring equity markets continue to captivate market participants. The myriad forces at work in the market currently make it extremely challenging to chart the path forward for interest rates. Rates are edging higher this morning as traders digest the vast amount of data and information disclosed this week – traders may simply be catching their breath after a tumultuous April trading environment. I would point out that SOFR swap rates have been quietly creeping back up toward the “war highs” we witnessed at the end of March (See Chart 2, 2A & 2B).

This morning, we will see April ISM Manufacturing and Prices Paid data released at 10:00 AM. I do not expect this number to have a dramatic impact on rates, but given it is an inflation number, it could certainly help frame the “go forward” inflation narrative. As we know, three Fed officials dissented at the last meeting because they wanted stronger Fed language. They argued that, given the uncertainty surrounding the outlook for the war, the Fed’s next move could be a cut or a hike. Going forward, signs inflation continues to move higher will further erode the possibility of a Fed rate cut this year.

By all accounts, we are no closer to a resolution of the war, which is beginning to make market participants very nervous. Market uncertainty remains extremely elevated. From my perspective, the lack of progress is slowly removing the security blanket the market has counted on the past two weeks – the belief that a resolution to the conflict is “imminent”. Thus far, that is simply not the case. The longer this war drags on, the greater the possibility we see the “double whammy” – higher inflation and lower economic growth. Traders are grappling with that right now. I advise staying nimble if you have upcoming caps or swaps to execute – market dynamics can and will change quickly.

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.The US/Iran “war” continues to dominate market sentiment this week.

• The US Justice Department has dropped the investigation into the US Central Bank and Chairman Powell, likely clearing the way for Kevin Warsh to be confirmed as the next FOMC Chairman.From the market’s perspective, there are still many questions surrounding both Mr. Warsh’s monetary policy views, and what is next for Jay Powell.

• 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. Overall market sentiment, and perhaps even economic performance, could be impacted by “tech” earnings for the foreseeable future.

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

• SCOTUS is 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.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1-2 bps. 5Y and 10Y SOFR swap rates are trading up ~3-5 bps on the day. The very back-end of the swap curve is currently trading up ~1-2 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: 9:15 AM Eastern

Chart 1 Key:

• Far Left Columns:US Treasury Yields & Change on Day (bps)

• Center Columns:SOFR OIS Swap Spreads (bps) & Change on Day (bps)

• Far Right Columns:SOFR OIS Swap Rates & Change on Day (bps)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:15 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES DRIFT HIGHER; MARKET PARTICIPANTS AWAIT CLEAR DIRECTION

SOFR swap rates are drifting a touch higher this morning, as market participants weigh the myriad forces at work in the markets. Swap rates are also quietly creeping up closer to the “war-highs” we witnessed at the end of March. My view has not changed: I still feel that in the coming days, the primary market theme we have witnessed will continue: “confirmed” news that a long-term “peace plan” is progressing will lead to a bias toward lower swap rates and oil prices; conversely, factual news that diplomatic efforts are stalled, failing, or may drag on indefinitely, will likely shift the bias toward higher swap rates and push oil process higher. As the price of oil goes, so go rates, at least for the time being.

That said, it does feel like traders are being extraordinarily patient currently – that hope for a “quick resolution” is still clinging to life. It feels like market participants are going to hold on as long as possible before capitulating and accepting this war could turn into a prolonged conflict. From my perspective, it is the primary reason rates have not moved higher, especially considering oil remains above $110. I also felt that the underlying Fed message we heard this week – we may need to raise rates if this war drags on – should have spooked the market more than it did. There is a very real possibility then Fed’s next policy move is a hike.

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 ~3.722%(+51.2 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.722%(+50.2 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~3.942%(+42.2 bps).

CHART 2:Short-End SOFR Swap Rates – Prior 30 Trading Sessons

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; PRIOR 30 TRADING SESSIONS

CHART 2A:Long-End SOFR Swap Rates – Prior 30 Trading Sessions

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES; PRIOR 30 TRADING SESSIONS

CHART 2B:US Treasuries: Yield Overview Since October 2025

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 5/1/2026

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

• Cap premiums have moved lower recently given the significant decline in rate volatility and a drop in SOFR swap rates from “war highs”

• Current 1-Month Term SOFR = 3.64809% (Prior day: 3.65217%)

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.