Rates Dip as "Peace Plan" Optimism Builds

Flash Update: US RATE MARKETS – TUESDAY MAY 26, 2026

• UST yields and SOFR swap rates are moving lower this morning as market participants hold onto optimism a peace plan can be reached between the US and Iran

• However, continued clashes between the two sides are leading to a rebound in oil prices this morning – so far, markets have shrugged off the move in oil and are holding on to hope that a peace deal is close

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

• Next up for data: April Personal Income, Personal Spending and PCE data will be released on Thursday, May 28that 8:30 AM

• Kevin Warsh begins his term today as Chairman of the FOMC, ushering in a new era of US monetary policy

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

• Short-term SOFR swap rates are trading down ~5-7 bps this morning, depending on tenor

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

• Long-end SOFR swap rates are down ~4-5 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are moving lower this morning as optimism builds that a peace plan between the US and Iran is close to being completed. Comments made by US and Iranian officials over the weekend implied that two sides were moving towards an agreement. However, continued “clashes” between the two sides and an announcement last night that Iran could not agree to some of the US’s demands led to a rebound in oil prices and a slight crack in market optimism. Overall, the market shrugged off the rebound in oil prices and remains focused on progress toward a peace plan. However, a lack of tangible progress is likely to frustrate market participants once again – in that case we could see rates begin to tick higher. Traders want to see the negotiations lead to concrete results, the sooner the better.

I expect we could see a heightened level of rate volatility this week as news on the Middle East peace plan hits the wire. I do not expect traders to overreact – I believe they are still waiting for concrete news before establishing a new, likely lower trading range.

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 go oil prices, 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” will continue to dominate market sentiment this week.

• Kevin Warsh begins his term as Fed Chairman today. He will oversee his first meeting as FOMC Chairman in June. 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 ~5-6 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~6-7 bps. 5Y and 10Y SOFR swap rates are trading down ~6-7 bps on the day. The very back-end of the swap curve is currently trading down ~4-5 bps 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: 9:00 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 | 9:00 AM NY Rates Snapshot

CHART 2, 2A, 2B & 2C: SOFR SWAP RATES DIP AS OPTIMISM BUILDS FOR A US-IRAN PEACE PLAN

SOFR swap rates are moving lower this morning as market participants become increasingly optimistic that a peace deal will be reached between the US and Iran. A series of mostly encouraging announcements and news headlines over the weekend led to a growing optimism that the two sides are in fact close to negotiating a settlement to the conflict. Oil prices also dipped slightly on the weekend news, continuing the “as go oil prices, so go rates” theme we have been experiencing since basically the onset of the war.

Traders are being cautious not to overreact to the latest news, but it is clear they are ready to takes rates lower once the “war induced” inflation wildcard is removed from the table. This morning, we are seeing oil process rebound – despite the perceived progress towards a settlement, the two sides continue to clash, which is keeping traders cautious and uncertain.

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 – we are getting a taste of that this morning. Conversely, continued delays and/or a lack of results would likely drive rates higher.

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 ~3.903%(+69.3 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.901%(+68.1 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.081%(+56.1 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:Oil Prices Remain Primary Catalyst for Rates

Source: Bloomberg, LLP | 10-YEAR US TREASURY NOTE YIELD VS. BRENT CRUDE OIL PRICE SINCE AUGUST 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 5/26/2026

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

• Current 1-Month Term SOFR = 3.60833% (Prior day: 3.58432%)

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.