Rates Tick Higher as Market Anxiously Monitors War Developments

Flash Update: US RATE MARKETS – THURSDAY MAY 21, 2026

• UST yields and SOFR swap rates are ticking higher this morning, as traders wait to see tangible progress towards a US-Iran peace plan

• President Trump said the US was in the “final stages” with Iran; However, he also threatened to resume attacks in the coming days if Iran did not agree to his terms

• Iranian officials said the latest US proposal “has narrowed the gaps to some extent” and added, “further narrowing requires an end to the temptation for war on Washington’s part”

• Traders are growing increasingly frustrated by the lack of tangible progress toward a peace plan, hence the higher oil prices and higher rates we are seeing this morning – the primary market theme continues: As goes oil, so go rates

• Oil prices edged above $100 this morning, leading to higher global bond yields

• A US-Iran peace plan and re-opening of the Strait of Hormuz should alleviate inflation fears and lead to lower rates across the curve

• However, should negotiations collapse, be delayed indefinitely or lead nowhere, rates are likely to resume their march higher

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

• The April Fed meeting minutes showed“many” FOMC participants wanted to drop the easing bias from the statement, and a “majority” said further policy firming would likely be appropriate if inflation stayed persistently above 2%

• Next up for data: No major data is scheduled for release the remainder of this week.

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

• Short-term SOFR swap rates are trading up ~4-5 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~2-4 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 ticking higher this morning, as traders anxiously monitor US-Iran war developments. Comments made by US and Iranian officials overnight make it clear the two sides are negotiating. However, a lack of tangible progress is frustrating market participants, and adding to market fear and uncertainty. Traders want to see the discussions lead to concrete results, the sooner the better. Rates are once again approaching the “war highs” we witnessed on Tuesday.

Yesterday, rates dropped on hopes that the two sides were close to an agreement. Oil prices dropped, which led to lower global bond yields. However, sentiment reversed this morning and rates moved higher. We are seeing this morning just how fragile the market’s “optimism” is now – cautiously optimistic at best. I think the bias for rates remains to the upside for the very near-term.

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.In short, as goes oil, so go rates. From my perspective, the only way we will see materially lower rates is a peaceful resolution to the US-Iran conflict, and soon! Traders will continue to anxiously monitor war developments as news and developments unfold.

“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 ~4-5 bps. 5Y and 10Y SOFR swap rates are trading up ~2-4 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 TICK HIGHER AS MARKET FRUSTRATION GROWS

SOFR swap rates are ticking higher this morning as frustrated market participants push rates higher. Traders are becoming increasingly worried that, despite the ongoing rhetoric, negotiations may linger indefinitely. That is once again driving fear of higher inflation and eventually, weaker economic growth. The “one-way” direction of rates since the war began (read: UP) signals that higher inflation is still, by far, the biggest market worry. Higher rates are the hard evidence of that sentiment.

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 are witnessing today.

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 ~4.010%(+79.0 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.200%(+68.0 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 5/21/2026

• 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 = 3.57888% (Prior day: 3.59824%)

• 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.

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.