Rates Tick Lower as Traders Await Us/iran Peace Proposal Update

Flash Update: US RATE MARKETS – THURSDAY MAY 7, 2026

• UST yields and SOFR swap rates are moving lower again this morning on optimism a peace plan between the US and Iran is close to being completed

• Iran is currently reviewing a US peace proposal and there is a growing feeling an accord can be reached between the two sides

• Oil prices continue to decline - Brent crude oil is now trading under $100 a barrel

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

• Next up for Key Data: The April Employment Report will be released tomorrow, 5/8 at 8:30 AM

• Short-term SOFR swap rates are trading down ~2-3 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1-3 bps currently, depending on tenor

• Long-end SOFR swap rates are flat to down ~1 bp this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates drifted lower this morning as traders waited for updates on a potential US-Iran peace deal that would reopen oil flows through the Strait of Hormuz. Brent crude oil is trading near $97 a barrel, extending a decline on mounting confidence that an agreement in the Middle East is within reach. As a result, rates continue to tick lower, albeit cautiously.

Traders will continue to anxiously monitor developments as the “negotiation” news unfolds. Today’s rate move follows the market theme we have been tracking recently: progress towards a US/Iran peace deal and/or lower oil prices will likely lead to lower rates and more stable markets. Should the peace deal not happen, negotiations collapse or hostilities resume, we are likely to see higher oil prices and higher rates.

Tomorrow we will see the April Employment Report data released at 8:30 AM. Given the growing optimism that the US-Iran war may be ending soon, traders will be paying close attention to the jobs data. The market’s focus could quickly shift back to the labor market (and the Fed) if the war wraps up and the threat of higher inflation is curtailed. Right now, all signs point to a solid US labor market – last month’s jobs report was surprisingly strong. Currently, market participants do not expect a rate cut this year. Expectations for tomorrow’s release of the April Employment Report are as follows: Non-Farm Payroll Additions, 75k (vs. 186k the prior month); Average Hourly Earnings YoY, 3.8% (vs. 3.5% prior); Unemployment Rate, 4.3% (unchanged from the prior month).

“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.

• The US Justice Department has dropped the investigation into the US Central Bank and Chairman Powell, likely clearing the way for Kevin Warsh to be confirmed as the next FOMC Chairman.From the market’s perspective, there are still many questions surrounding both Mr. Warsh’s monetary policy views, and what is next for Jay Powell.

• Market participants continue to closely 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.

• Traders are growing increasingly concerned with the record-setting “partial” government shutdown currently underway. Traders are still hoping the situation is resolved quickly.

• 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 ~2-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~2-3 bps. 5Y and 10Y SOFR swap rates are trading down ~1-3 bps on the day. The very back-end of the swap curve is currently trading flat to down ~1 bp 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 EDGE LOWER AS MIDDLE EAST PEACE DEAL HOPE MOUNTS

SOFR swap rates are ticking lower this morning, as market participants grow increasingly optimistic that a peace plan can be reached between the US and Iran. SOFR swap rates had been slowly creeping up toward the war highs as the negotiations dragged on, but the encouraging diplomatic news this week has helped to push down swap rates. That said, traders remain cautious, so I expect the jittery market to continue, albeit with an improved outlook for an end to the conflict in the Middle East. We will not be out of the woods on this conflict until the signatures are on the peace plan!

Key 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 ~3.683%(+47.3 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.689%(+46.9 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~3.922%(+40.2 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 October 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 5/7/2026

• The rate decline we are witnessing this week is providing some relief for cap premiums

• Current 1-Month Term SOFR = 3.63940% (Prior day: 3.64565%)

• 1-Month Term SOFR is quietly ticking lower as the war outlook improves

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.