Rates Edge Higher as US-Iran Tensions Rise

Flash Update: US RATE MARKETS – WEDNESDAY JUNE 10, 2026

• UST yields and SOFR swap rates are a touch higher this morning as an anxious market monitors developments in the Middle East

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

• May CPI printed “as expected”, providing some relief to markets increasingly worried about materially higher inflation

• Fed officials are now within the “quiet period” ahead of next week’s FOMC meeting, Kevin Warsh’s first as Fed Chairman

• Market pricing now reflects that traders expect the next Fed “move” to be a rate hike…perhaps as early as October

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

• Next up for key data: May PPI data will be released tomorrow, 6/11 at 8:30 AM

• Short-term SOFR swap rates are trading up ~1 bp this morning, depending on tenor

• Medium-term SOFR swap rates are up ~1 bp 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 drifting a touch higher this morning. Fresh military clashes between the US and Iran overnight initially pushed rates higher early this morning, but the release of relatively tame May CPI data helped to pump the brakes on higher rates. May CPI data printed “as expected” this morning, providing some relief to jittery market increasingly worried about rising inflation.

Markets are also growing increasingly worried about the status of the ceasefire in the Middle East. Fresh military clashes and strong rhetoric from the two sides are casting doubt on the likelihood a peace accord will be reached quickly between the two sides. Right now, it is challenging for market participants to gauge the actual status of talks between the sides, which is why rates have been trading in a tight range this week. For weeks, US officials have whipsawed between saying an end to the war is imminent and threatening to resume full-scale attacks. Iran’s rhetoric and continued military strikes are also making it difficult for market participants to predict the outcome of the conflict, or perhaps more importantly, the timetable for the outcome. Traders are saying patient right now – we will see how long that lasts.

Bottom line right now: The overall “rate markets theme” we have been tracking recently will continue – tangible 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 intensify, we are likely to get higher oil prices and higher rates. The only way we will see materially lower rates and talk of a Fed rate hike subside is a peaceful resolution to the US-Iran conflict, and soon. Make no mistake, rates can easily move higher from here if peace talks collapse or hostilities resume.

May PPI results will be released tomorrow at 8:30 AM. Traders will be paying close attention to the results, given the renewed focus on inflation. A hotter-than-expected PPI print could push rates higher, particularly on the short end of the curve, as an increase in wholesale inflation could further increase the odds that the Fed will need to raise rates to combat rising inflation. Expectations for May PPI are as follows: Headline MoM, 0.7% (vs. 1.4% the prior month); Core MoM, 0.5% (vs. 1.0% prior); Headline YoY, 6.4% (vs. 6.0% prior), Core YoY, 5.4% (vs. 5.2%).

Traders are now pricing in a quarter-point Fed hike by year-end due to a stronger-than-expected labor market and higher inflation. Focus is likely to shift to the Fed as we approach next week’s FOMC meeting. The meeting is also significant as it will be Kevin Warsh’s first meeting as Chairman of the FOMC. There is a ton of speculation about what Mr. Warsh has planned for the Fed including less communication, a revised inflation target and a refinement of Fed forecasting models, to name a few. A new era begins for the Fed!

“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 up 1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1 bp. 5Y and 10Y SOFR swap rates are trading up ~1 bp 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: 9:30 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 FLAT AS RATE MARKETS SEEK DIRECTION

SOFR swap rates are mostly steady this morning – the back end of the swap curve is up 1 bp or so. Traders are staying patient while they seek direction. Conflicting messages about peace negotiations between the US and Iran and fresh clashes between the two sides are making it challenging for traders to gauge what comes next. That uncertainty is holding rates in a tight range, although the bias for rates this week is still leaning toward the upside. Expect rates to remain biased higher for as long as the war-induced inflation risk remains front-and-center for market participants, and the Fed. SOFR swap rates across the curve are currently sitting at or very close to the 12-month highs.

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 ~3.976%(+76.6 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.968%(+74.8 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.115%(+59.5 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, Prior 6-Months

Source: StreetStats | US Treasury Bill, Note & Bond Yields; Prior 6-Months

CHART 3 & 3A: MAY CPI RECAP – CPI PRINTS “AS EXPECTED” BUT STILL RUNNING HOT

Consumer inflation increased in May as the US-Iran war pushed up energy prices. Headline CPI climbed 4.2% from a year earlier, the most since early 2023. Core CPI, which excludes more volatile food and energy prices, increased 0.2% from April and 2.9% from a year earlier.

The increases in CPI were largely in line with economists’ expectations. On a slightly positive note, core CPI rose by less than forecast. Overall, the CPI results provided more of a short-term “relief” to markets, rather than any long-term “comfort” that inflation is contained. Yes, traders were relieved to see we are not facing runaway war-induced inflation – however, the increase in consumer inflation remains well above the level the Fed is targeting.

Forecasts are calling for higher inflation to continue, and there may be some inflationary overhang even if the conflict in the Middle East ends quicky. That could prompt the FOMC to consider an interest-rate increase this year – market pricing now implies the next Fed move will be a rate hike, perhaps as early as October. Beyond the initial energy shock to consumers via higher gasoline prices, disruptions to fertilizer markets may eventually lead to higher grocery bills, while rising transportation costs could boost prices for all kinds of consumer goods.

CHART 2:May CPI Recap

Source: Bloomberg, LLP | MAY CPI RECAP

CHART 2A:Market FOMC Expectations Dramatically Shift – Is a Rate Hike on the Horizon?

Source: Bloomberg, LLP | MARKET IMPLIED FOMC RATE ADJUSTMENT EXPECTATIONS

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 6/10/2026

• Current 1-Month Term SOFR = 3.62405% (Prior Reset: 3.62103%)

• Traders continue to wait for a substantive update on a Middle East peace accord

Cap Pricing Matrix:1-Month Term SOFR Cap Premiums: Week-On-Week

*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.