Rates Tick Higher as Traders Anxiously Monitor US-Iran War Developments

Flash Update: US RATE MARKETS – MONDAY JUNE 1, 2026

• UST yields and SOFR swap rates are ticking a touch higher this morning as traders anxiously monitor US-Iran war developments

• Lack of tangible progress toward a US-Iran peace plan is frustrating market participants and increasing the possibility for higher inflation

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

• Next up for data: The May Employment Report is due Friday 6/5 at 8:30 AM

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

• Short-term SOFR swap rates are trading up ~1-2 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~2-3 bps 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 ticking a touch higher to start the week, due mainly to market frustration surrounding a lack of progress towards peace in the Middle East. Traders are waiting for signs that a deal that would end the conflict and reopen the Strait of Hormuz remains on track. This weekend, Israel stepped up its offensive against Iran-backed Hezbollah in Lebanon, Tehran struck a Kuwaiti air base and the US conducted “self-defense strikes” on Iranian radar and command-and-control sites. Not exactly the progress towards peace that the market was hoping for, especially given the encouraging comments from the two sides late last week.

Overall, rates have been 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.

Bottom line: 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.

“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 ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~2-3 bps. 5Y and 10Y SOFR swap rates are trading up ~1-2 bps on the day. The very back-end of the swap curve is currently trading up ~1-2 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: 8:45 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 | 8:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK HIGHER AS A US-IRAN PEACE PLAN REMAINS ELUSIVE

SOFR swap rates are ticking a touch higher this morning, as an unclear timetable for a US-Iran peace plan heightens market fear and uncertainty. Fresh clashes between Iran and the US pushed oil prices higher and has led to higher rates this morning. Market participants are growing increasingly frustrated by the lack of tangible progress on a US-Iran peace plan. That frustration is translating to higher crude oil prices, which is augmenting the inflation threat and pushing rates higher this morning.

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 ~3.889%(+67.9 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.886%(+66.6 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.049%(+52.9 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

CHART 3 & 3A: INFLATION PRESSURE BUILDS AS US-IRAN WAR DRAGS ON; MARKET “FED” EXPECTATIONS TURN HAWKISH

Given the lack of any real, tangible progress towards peace in the Middle East, the market’s “Fed” expectations have turned Hawkish as fear of higher inflation dominates market sentiment. Short-end US Treasury yields have been trading above the Fed Funds effective rate since the war’s inception. That gap has continued to widen as the war has dragged-on. Right now, traders are positioning as if they expect we are about to enter a Fed “hiking cycle”. Bottom line, I think the growing hawkish sentiment can and will reverse quickly, should the war come to a swift conclusion and oil prices drop to pre-war levels.

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 25% higher than when the war began. The threat of higher inflation will remain front-and center for market participants while oil prices remain at or above current levels.

CHART 3: Market Fed Expectations Turn Hawkish…For Now

Source: Bloomberg, LLP | FED FUNDS EFFECTIVE RATE VS. 2-YEAR US TREASURY NOTE YIELD SINCE 2021

CHART 3A:Inflation Pressure Builds As US-Iran Peace Plan Progress Stalls

Source: Bloomberg, LLP | BRENT & WTI CRUDE OIL FUTURES PRICES SINCE JANUARY 2026

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 6/1/2026

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

• Current 1-Month Term SOFR = 3.61998%(Prior day: 3.62045%)

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.