Rates Drift a Touch Lower as Global Bond Sell-Off Eases

Flash Update: US RATE MARKETS – WEDNESDAY MAY 20, 2026

• UST yields and SOFR swap rates are drifting lower this morning as the global sell-off in bonds eased overnight

• The status of the US-Iran war remains in limbo as the two sides continue to exchange rhetoric and threats

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

• Nvidia reports earnings after the bell today; Traders will be paying close attention to the results

• Next up for data: No major data is scheduled for release this week. The FOMC meeting minutes for April will be released this afternoon @ 2:00 PM

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

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

Good morning – US Treasury yields and SOFR swap rates are drifting a touch lower this morning, as the global bond sell-off eased overnight. We may also be reaching market levels that traders believe adequately “price-in” the war-induced inflation risk. Additionally, the threat to economic growth grows with each day that the conflict lingers. That is once again creating whispers that stagflation is on the horizon. In that environment, most asset classes struggle, including bonds. Today’s slight dip in rates feels more like the market taking a breather to wait for Nvidia earnings, rather than a change in market sentiment or direction. Nvidia earnings are due for release this afternoon after the bell.

I think the bias for rates remains to the upside for the near-term, but traders are becoming increasingly concerned about the damage the war will do to economic growth. That may keep rates from running away to the upside in the short-term but make no mistake, if oil prices begin to move higher again, rates are likely to follow.

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, is significantly delayed or worse, hostilities resume, we are likely to get higher oil prices and higher rates. From my perspective, the only way we will see materially lower rates is a peaceful resolution to the US-Iran conflict. Traders will continue to anxiously monitor war developments as news and developments unfold.

Markets will also be tracking the release of the April Fed meeting minutes this afternoon at 2:00 PM. Given the dissensions at the last meeting, traders will be paying attention to the nuances in the minutes. While traders are currently leaning toward a Federal Reserve hike in December, the meeting minutes are expected to reinforce the view that the easing cycle is on an extended hold​​​​​​​​​​​​​​​.

“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 down ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~1-2 bps. 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 ~1-2 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: 9:30 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 | 9:30 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES DRIFT LOWER AS GLOBAL BOND SELL-OFF EASES; MARKET TAKES A BREATHER

SOFR swap rates are drifting a touch lower this morning, as the global bond sell-off eased overnight – traders appear to be taking a breather to assess the outlook for peace in the Middle East. The US and Iran continue to exchange rhetoric and threats, and there have been no substantive updates on progress towards a peace plan. As I mentioned earlier, it may also be getting to the point where market participants are forced to weigh the threat of higher inflation vs. the threat of significant damage to economic growth.

An uncertain timetable for the next round of peace talks and an increasingly fragile ceasefire are keeping traders on their toes. Progress towards a peace plan will continue to be the main short-term driver of interest rates. Actual results, or announcements that concrete results are in the works, could help to push rates significantly lower. Conversely, continued delays and/or a lack of results would likely drive rates higher, as we witnessed recently.

The swap curve continues to steepen as fear of higher inflation mounts.

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 ~3.961%(+75.1 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.031%(+81.1 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.225%(+70.5 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

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 5/20/2026

• The uncertain US-Iran war outlook is steadily pushing rates higher, leading to materially higher cap premiumsover the past ten days

• Rate volatility remains relatively stable, although the rate movement recently has nudged volatility higher

• Current 1-Month Term SOFR = 3.59824% (Prior day: 3.60264%)

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

• The dip in 1-Month Term SOFR evidences a lack of market liquidity and tells me the market expects the Fed to be on hold for the foreseeable future

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.