Rates Drift Higher as Market Anxiously Monitors US-Iran Peace Progress

Flash Update: US RATE MARKETS – FRIDAY JUNE 12, 2026

• UST yields and SOFR swap rates are drifting a touch higher, as an anxious (but increasingly optimistic) market monitors US-Iran peace negotiations

• Rates decreased yesterday after President Trump called off airstrikes against Iran and signaled a deal between the two sides was “very close”

• This morning, news reports are signaling that an interim peace accord could be signed between the US and Iran as early as Sunday

• Rates are holding relatively steady this morning as traders are being careful not to overreact to the latest news and headlines

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

• 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 anticipate the next Fed “move” to be a rate hike

• 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 ~1-2 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 holding mostly steady this morning, as market participants wait for news regarding an interim peace accord between the US and Iran. Yesterday, rates dipped after President Trump announced he was calling off planned airstrikes against Iran because a deal between the two sides was “very close”. Rates dropped ~6-8 basis points across the curve, and oil prices retreated to under $90.

In the latest news from the Middle East this morning, a Group of Seven (G7) official said an interim peace accord between the US and Iran could be signed as soon as Sunday. Iran’s foreign ministry told state-run media that a framework text was nearly finalized. According to reports, the draft of the peace agreement contains 14 provisions, including the reopening of the Strait of Hormuz and 60 days of negotiations on nuclear issues. The latest news headlines have bolstered market optimism that a deal is close. However, traders are likely to remain patient until actual, tangible results are “officially” announced.

Keep in mind that previous bursts of market optimism have ended in disappointment. That said, it does feel like there might be some teeth behind the latest headlines – I am the most optimistic I have been yet that an interim peace accord will be reached in the next few days. For now, however, I think the market reaction we are seeing is more “relief” that we will not see a further escalation in the conflict.

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. Right now, market participants are optimistic that an interim peace accord between the two sides is close – that was the primary driver of lower rates yesterday.

Traders are still pricing in a quarter-point Fed hike by year-end due to a stronger-than-expected labor market and higher inflation. That could change if the situation in the Middle East is resolved, even on an interim basis. Market 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 ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1-2 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 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 DRIFT HIGHER AS MARKET WAITS FOR DIRECTION; OPTIMISM FOR MIDDLE EAST PEACE “RESULTS” MOUNTS

SOFR swap rates are holding mostly steady this morning – they are up a tick or two from last night’s closing levels. Traders remain patient while they seek direction, which most believe will come from a resolution to the US-Iran conflict. The current high level of uncertainty is holding rates in a tight range. We saw swap rates dip ~6-8 bps yesterday after President Trump called off attacks against Iran and signaled an agreement is “close”. Markets are holding here – traders are not likely to get carried away to the downside without seeing “verifiable” news a peace accord has been reached. Barring a major announcement today, I expect rates to remain range bound as the market waits for news. There is a feeling that a major announcement could be made over the weekend.

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 ~4.001%(+79.1 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.983%(+76.3 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.118%(+59.8 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

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 6/12/2026

• Current 1-Month Term SOFR = 3.62539%(Prior Reset: 3.62128%)

• Cap premiums are holding mostly steady this week, as 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.