Rates Mostly Steady as Market Monitors Developments in the Middle East

Flash Update: US RATE MARKETS – THURSDAY MAY 28, 2026

• UST yields and SOFR swap rates are ticking a touch lower this morning; Overall, rates are holding mostly steady as traders anxiously monitor negotiations between the US and Iran

• Oil prices moved higher overnight after fresh clashes between the two sides, leading to slightly higher rates early this morning, particularly on the short end of the curve

• However, the early sell-off stalled out as traders paused to monitor the latest US-Iran developments

• Economic data released this morning showed Q1 GDP expanded less than initially estimated and PCE rose to the highest level since 2023

• Market participants largely ignored the data released this morning, mainly due to the increase in hostilities in the Middle East

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

• Next up for data: May ISM Manufacturing Data is due on Monday 6/1 at 10:00 AM; The April JOLTS jobs data is due on Tuesday 6/2 at 10:00 AM.

• 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 down ~1-2 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are holding mostly steady this morning, as market participants weigh the situation in the Middle East. Fresh military clashes between the US and Iran initially pushed oil prices, and rates higher this morning. As the morning progressed, the sell-off stalled out and rates moved a tick or two lower. Overall, rates are holding mostly steady as market participants hold out hope that a peace plan between the US and Iran will be reached soon. Rates are likely to remain in somewhat of a holding pattern until we get the next substantive update on progress towards a peace plan between the US and Iran. Traders are also likely to continue to “take their cue” from the direction of oil prices.In short, as go oil prices, so go rates.

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, and soon. Traders will continue to anxiously monitor war developments as news and developments unfold.

As far as this morning’s data releases are concerned, traders basically shrugged-off the data – the market’s focus remains squarely on the Middle East. In summary, consumer spending edged up in April, and annual inflation (PCE) accelerated to the highest level since 2023. GDP data released this morning showed the economy expanded in the first quarter at a 1.6% annualized pace, slower than previously estimated.

“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. 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 ~1-2 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: 11:00 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 | 11:00 AM NY Rates Snapshot

CHART 2, 2A, 2B & 2C: SOFR SWAP RATES MOSTLY STEADY AS MARKET ANXIOUSLY MONITORS DEVELOPMENTS IN THE MIDDLE EAST

SOFR swap rates are holding mostly steady this morning – a touch lower on the short end. Fresh clashes between Iran and the US pushed oil prices higher and initially led to higher rates this morning. However, the early sell-off stalled out, and swap rates moved a tick or two lower. Market participants are still holding on to optimism that a peace deal will be reached between the US and Iran. I think that is the main reason why rates are not moving higher this morning. Market participants basically shrugged-off the economic data results – they had virtually no impact on the market – all eyes remain focused on the Middle East.

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 and the price of oil will continue to be the main short-term drivers of interest rates. Although crude oil prices have come down from the war-highs we experienced recently, they are still approximately 30% higher than when the war began.

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 ~3.872%(+66.2 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.883%(+66.3 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.056%(+53.6 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: Crude Oil Prices Tick Higher As US-Iran Hostilities Intensify

Source: Bloomberg, LLP |

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

The market is once 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 high-level of uncertainty surrounding 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 5/28/2026

• Cap premiums have eased a touch this week, given the overall 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 = 3.62031% (Prior day: 3.61389%)

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.