Rates Edge Lower as "Peace Plan" Optimism Builds

Flash Update: US RATE MARKETS – WEDNESDAY MAY 27, 2026

• UST yields and SOFR swap rates are drifting lower this morning, as market participants optimistically monitor progress towards peace in the Middle East

• Optimism that a US-Iran peace plan is within reach is building; Oil prices slide lower on hopes that the Strait of Hormuz will reopen soon

• 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 tomorrow, May 28that 8:30 AM

• Kevin Warsh begins his term 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 ~1 bp this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1 bp currently, depending on tenor

• Long-end SOFR swap rates are down ~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 market participants monitor progress towards peace in the Middle East.

Despite little overnight news from the Middle East, optimism that the US and Iran are nearing a deal to end the war and fully reopen the Strait of Hormuz continues to build. Brent crude oil prices also continue to edge lower and are now below $97 a barrel. The improved market sentiment and dip in rates we have witnessed so far this week reflect hopes that oil flows from the Middle East will normalize soon, mitigating concerns about a spike in inflation. Rates are likely to remain in a holding pattern until we get the next substantive update on progress towards a peace plan between the US and Iran, though I do expect rates to be biased lower if the current level of market optimism holds.

For the week, 2-year SOFR swap rates are down ~10 bps from the “war-highs” we witnessed last Thursday. 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. Traders are also likely to continue to “take their cue” from the direction of oil prices.

We will see some important economic data released tomorrow morning. However, with the market focused on peace in the Middle East, tomorrow’s data releases may have less of an impact than I initially thought they would. We will see April results for Personal Income, Personal Spending and PCE released tomorrow at 8:30 AM. Traders are likely to be focused on the PCE data, but as mentioned, traders may take the inflation results with a grain of salt given the focus on ending the war and reopening the Strait of Hormuz. To be concise, the inflation pressures the market is feeling right now may be quickly alleviated by an end to the conflict in the Middle East. Expectations for April PCE are as follows: Headline MoM, 0.5% (vs. 0.7% the prior month); Core MoM, 0.3% (vs. 0.3% prior); Headline YoY, 3.8% (vs. 3.5% prior); Core YoY, 3.3% (vs. 3.2% prior).

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 ~1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading down ~1 bp. 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: 9:15 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 EDGE LOWER AS MIDDLE EAST “PEACE PLAN” OPTIMISM BUILDS

SOFR swap rates are drifting lower this morning – market participants are growing 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 has led to a growing optimism that the two sides are in fact close to negotiating a settlement to the conflict.

SOFR swap rates have declined from the “war-highs” we hit last Thursday. The 2-year SOFR swap rate is down ~10 bps from the war-high we witnessed last Thursday. The 10-year SOFR swap rate is down ~17 bps from the war-highs we hit last week.

Traders are being cautious not to overreact to the latest headlines, but it is very clear they are ready to takes rates lower once the “war induced” inflation wildcard is removed from the table. Progress towards a peace plan will continue to be the main short-term driver of interest rates.

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 ~3.891%(+68.1 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.893%(+67.3 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.069%(+54.9 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 5/27/2026

• Cap premiums have eased a touch this week, given the decline in SOFR swap rates since last Thursday

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

• Current 1-Month Term SOFR = 3.61389% (Prior day: 3.60833%)

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.