FOMC Rate Decision Due Today at 2:00 Pm

Flash Update: US RATE MARKETS – WEDNESDAY JUNE 17, 2026

• UST yields and SOFR swap rates opened mixed this morning but are holding mostly steady as traders await this afternoon’s FOMC rate decision

• Traders remain cautious regarding the “interim” peace accord between the United States and Iran – there is still a healthy dose of skepticism surrounding how long the peace accord between the two sides will last, and how effective it will be in reopening the Strait of Hormuz

• The US/Iran conflict remains a primary driver for the rate markets, though market sentiment is improving

• Retail Sales for May beat expectations, a sign that the US consumer remains resilient despite higher gasoline prices

• Fed officials remain within the “quiet period” ahead of today’s FOMC rate decision, Kevin Warsh’s first as Fed Chairman

• The next FOMC rate decision is due today, 6/17 at 2:00 PM

• Market participants expect the Fed to hold the benchmark rate unchanged, but remove the “easing bias” from the official statement

• Kevin Warsh will hold his first press conference as FOMC Chairman this afternoon at 2:30 PM

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

Good morning – US Treasury yields and SOFR swap rates opened mixed this morning but are overall holding mostly steady as markets prepare for the FOMC rate decision and anxiously monitor developments in the Middle East. Market participants are also keeping one eye on the “G7” meeting currently underway. Short-term rates are up a tick this morning, reflecting shifting Fed expectations. Longer term rates are down similarly, reflecting waning inflation fear.

Regarding the latest news out of the Middle East, traders remain cautious and are (so far) not overreacting to the headlines and rhetoric. There is still a healthy dose of market apprehension and skepticism surrounding the peace agreement, mainly centered on how long it will last and how effective it will be in reopening the Strait of Hormuz.

One thing is clear to me: The two-sides still have much to discuss. Keep in mind this is only an “interim” peace accord – there are likely some contentious negotiations on the horizon. That said, market sentiment has improved dramatically since the beginning of last week. The peace accord news has been mostly well received by market participants and investors. Traders seem willing to wait for more details before carving out a new trading range. Market participants need more hard facts and information, not propaganda and rhetoric.

US May Retail Sales printed above expectations in a sign of resilient consumer demand despite significantly higher gasoline prices. Headline Retail Sales rose 0.9% in May, beating estimates calling for an increase of 0.6%. Retail Sales less autos and gas also topped expectations. May Retails Sales details are provided below.

May Retail Sales Recap

The rate markets are eagerly anticipating this afternoon’s Fed rate decision, Kevin Warsh’s first as FOMC Chairman. Market expectations almost unanimously expect the Fed to hold the benchmark rate steady. However, given the shifting dynamics of the US-Iran conflict and considering the dissension we saw at the last Fed meeting, markets will be very interested in the committee’s official statement, and even more interested in what Mr. Warsh will reveal during his first press conference as FOMC Chairman. The peace accord between the US and Iran is a new development that is currently only serving to ramp up uncertainty surrounding what is next 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.

• Kevin Warsh begins his term as Fed Chairman. He will oversee his first meeting as FOMC Chairman on Wednesday 6/17. From the market’s perspective, there are still many questions surrounding Mr. Warsh’s monetary policy views and his plans for the central bank.

• 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 flat to last night’s closing levels. 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: 9:15 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 | 9:15 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES MOSTLY STEADY AS MARKET AWAITS FOMC RATE DECISION

SOFR swap rates are holding mostly steady this morning as market participants await the first Fed rate decision under new Chairman Kevin Warsh and anxiously monitor developments in the Middle East. The market is particularly jittery this morning as we enter a new era for the US Central Bank.

Traders remain cautious – there is a healthy dose of skepticism remaining in the market surrounding how long the deal will last and how effective it will be ultimately. I think for markets, the “proof” will be in how long it takes the Strait of Hormuz to resume “normal” commercial operating levels. So long as crude oil is moving through the Strait of Hormuz, market participants are likely to stay patient while “final” negotiations between the two sides continue.

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 ~3.921%(+71.1 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.884%(+66.4 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.021%(+50.1 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, 3B & 3C: FOMC PREVIEW: WARSH TAKES THE HELM AT THE FED…FASTEN YOUR SEATBELTS!

Today marks the start of a new era for the Federal Open Market Committee as Kevin Warsh begins his term as Fed Chair. There is considerable uncertainty among market participants surrounding what Mr. Warsh has planned for the Fed. More importantly, questions continue to swirl around where Mr. Warsh’s allegiance lies – with Fed independence or with an administration determined to force rates lower. Only time will tell the answer to that, but the debate is likely to continue for the foreseeable future. We will officially hear from Mr. Warsh this afternoon during his first press conference – I believe the “first impression” he sets today will be critical in setting the “go forward” tone of the Fed. Note: we will also see a new “dot-plot” and fresh economic projections released by the Fed this afternoon.

There is tremendous speculation on how new Fed Chairman Kevin Warsh will express the monetary policy outlook. One big rumor in the market has been swirling all week: In a departure from the eras of Jerome Powell, Janet Yellen, and Ben Bernanke, Warsh is unlikely to submit his own dot to the dot plot. From my perspective, that will send a clear message to markets: Warsh intends to provide less forward guidance. He will also likely announce initiatives underway or under consideration, including a potential review of the Fed’s broader communications framework. Personally, I expect a much shorter news conference and Q&A from Mr. Warsh today than we experienced under former Chair Jerome Powell.

Bottom line, market participants remain divided on the Fed’s next move, with forecasts ranging from rate cuts to multiple rates increases over the coming year. Oil prices have retreated on expectations a US-Iran agreement will reopen the Strait of Hormuz, which will boost supply and ease inflation pressures. The latest developments in the Middle East are prompting investors to reassess the outlook for global interest rates.

The FOMC is widely anticipated to leave the overnight benchmark rate unchanged today and are expected to remove the “easing bias” from the official policy statement, indicating a more hawkish stance. What happens next is anyone’s guess!

CHART 3:Market Expects the Fed’s Next Move to be a Rate Hike…However, “Fed Uncertainty” Remains Elevated

Source: Bloomberg, LLP | FED POLICY PATH EXPECTATIONS THROUGH Q1 2028; OIS SWAPS

CHART 3A: Warsh Takes the Helm at the Fed as Market Expectations Are Shifting Dramatically

Source: Bloomberg, LLP | MARKET IMPLIED FED POLICY EXPECTATIONS VS. MARCH FOMC FORECAST

CHART 3B:Rising Inflation has Turned Fed-Speak Hawkish in Recent Months

Source: Bloomberg, LLP | Bloomberg Fed-Speak Index Since 2016

CHART 3C:The Challenge for the Fed: Inflation Expected to Remain Stubborn

Source: Bloomberg, LLP | BRENT CRUDE OIL PRICES, PCE DATA & CPI DATA – 2026 YTD

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 6/17/2026

• Current 1-Month Term SOFR = 3.63718% (Prior Reset: 3.63639%)

• Cap premiums have dropped this week, as an interim peace accord between the US and Iran has pushed swap rates lower

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.