Rates Tick Higher as Oil Prices Rise

Flash Update: US RATE MARKETS – FRIDAY MAY 15, 2026

• UST yields and SOFR swap rates are moving higher this morning as oil prices rise and apprehension surrounding the outcome of the war mounts

• The status of the US-Iran war remains in limbo; There is no timetable for the next round of talks between the two sides

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

• President Trump’s visit to China has wrapped up without any major new developments or unexpected announcements

• The recent meeting between President Trump and President Xi marks the first of four scheduled meetings between the two heads of state

• Overall, the US-China trade summit had little impact on the rate markets

• The next FOMC rate decision is due on Wednesday, June 17th at 2:00 PM

• Short-term SOFR swap rates are trading up ~4-7 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~6-7 bps currently, depending on tenor

• Long-end SOFR swap rates are up ~6-7 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are moving higher this morning, due mainly to apprehension surrounding the outcome of the US-Iran war. The uncertain timetable for an end to the conflict and reopening of the Strait of Hormuz is once again pushing oil prices higher. Optimism that a deal can be reached soon is waning, which has increased fear that a sustained conflict will lead to higher inflation. I also think that traders hoped the US-China summit would somehow lead to progress on a US-Iran peace plan – that didn’t happen. Now that the US-China “distraction” is over, traders will once again be laser focused on the outlook for the war.

The overall market theme we have been tracking recently continues – progress towards a US/Iran peace deal and/or lower oil prices will likely lead to lower rates and more stable markets. Conversely, if we see indications that the peace deal will not happen, the next round of negotiations is significantly delayed or hostilities resume, we are likely to get higher oil prices and higher rates. Traders will continue to anxiously monitor war developments as the news and developments unfold.

Bottom-line, the slow uptick in rates since last week tells me traders are frustrated by the lack of progress toward a US-Iran peace deal – each day the war lingers puts more upward pressure on inflation. Eventually, economic growth will also be negatively impacted.

“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.

• Kevin Warsh has been confirmed as the new FOMC Chairman. He will oversee his first meeting as Chair beginning June 16. From the market’s perspective, there are still many questions surrounding both Mr. Warsh’s monetary policy views and his plans for the central bank, and what is next for Mr. Powell.

• Market participants continue to 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.

• 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 ~4-5 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~5-7 bps. 5Y and 10Y SOFR swap rates are trading up ~6-7 bps on the day. The very back-end of the swap curve is currently trading up ~6-7 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 & 2C: SOFR SWAP RATES MOVE HIGHER AS OIL PRICES RISE, “WAR” UNCERTAINTY MOUNTS

SOFR swap rates are moving higher this morning on the back of higher oil prices. An uncertain timetable for the next round of peace talks and an increasingly fragile ceasefire are pushing oil prices higher, keeping the fear of higher inflation front-and-center for market participants. Traders remain uncertain and apprehensive about the outcome of the war. Barring an unexpected announcement that a peace deal has been reached, I expect swap rates to remain biased higher in the near-term. Oil prices are not likely to stabilize until the Strait of Hormuz is reopened and the war between the US and Iran ends.

I would also point out that we have now reached new “war-highs” for SOFR swap rates.You will also notice that the short end of the curve has “bunched up” (See Chart 2). The curve tends to flatten on the short end when there is a high level of market uncertainty, particularly surrounding the path forward for monetary policy. A flat “short end” favors borrowers looking to enter interest rate swaps.

SOFR swap rates are higher week-on-week: The 2-year swap rate opened this week at 3.722% and is currently trading at 3.906% (+18.4 bps). The 10-year SOFR swap rate began the week at 3.951% and is currently trading at 4.128% (+17.7 bps). SOFR swap rates across the curve are now sitting at 12-month highs. Market optimism that a peace deal will be reached and higher inflation averted is waning dramatically.

Key SOFR 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 ~3.906%(+69.6 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.937%(+71.7 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.128%(+60.8 bps).

CHART 2:Short-End SOFR Swap Rates – Since 2/27/2026 (Start of War)

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; SINCE 2/27/2026

CHART 2A:Long-End SOFR Swap Rates – Since 2/27/2026 (Start of War)

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES; SINCE 2/27/2026

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

Source: StreetStats | US Treasury Bill, Note & Bond Yields; Prior 6-Months

CHART 2C:Rising Bond Yields Keep Pressure on Borrowing Costs

Source: Bloomberg, LLP | US 2-YEAR TREASURY NOTE YIELD SINCE JANUARY 2025

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 5/15/2026

• The uncertain US-Iran war outlook, and hotter-than-expected inflation data, are nudging rates higher, leading to higher cap premiums

• Rate volatility remains relatively subdued, as market participants and traders move into a “wait-and-see” mode

• Current 1-Month Term SOFR = 3.62709% (Prior day: 3.62709%)

• 1-Month Term SOFR has been quietly drifting lower over the past two weeks and is currently sitting at a 12-month low

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.