Rates Tick Higher as Market Assesses Developments in the Middle East

Flash Update: US RATE MARKETS – MONDAY JUNE 22, 2026

• UST yields and SOFR swap rates ticked higher this morning, as market participants assess developments in the Middle East and ponder the Fed’s next move

• Oil prices continue to retreat, and Iranian officials hailed the “tremendous progress” made in peace talks between the US and Iran

• However, lingering apprehension and uncertainty regarding the peace negotiations is keeping the market on edge and nudging rates higher this morning

• Rate markets are also still trading in the wake of the surprisingly hawkish Fed meeting last week

• The hawkish pivot by the Fed caught the market by surprise and is contributing to higher rates this morning

• The new Fed Chair, Kevin Warsh, also announced he is establishing a task force charged with a complete review of how the Fed approaches monetary policy analysis and implementation

• The “task force” announcement was expected by market participants, but the lack of clear details is adding to market uncertainty surrounding the FOMC and monetary policy

• The US/Iran conflict remains a primary driver for the rate markets, though market sentiment has significantly improved

• Next up for data: May PCE will be released on Thursday, 6/25 at 8:30 AM

• Short-term SOFR swap rates are trading up ~1-5 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~3-5 bps currently, depending on tenor

• Long-end SOFR swap rates are up ~3-5 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are ticking higher this morning as market participants assess developments in the Middle East and ponder a hawkish pivot by the Fed. Regarding the Middle East, the latest updates on negotiations between the US and Iran have been largely positive. Iranian officials said overnight that there has been “tremendous progress” between the two sides. As a result, crude oil prices dipped below $80 a barrel and there is a growing sentiment that the “war induced” inflationary pressure will abate as oil prices settle back down. However, rates are higher this morning.

I think rates are ticking higher for two reasons – First, it feels like the market is still trading in the wake of the surprisingly hawkish Fed meeting last week. Markets were closed on Friday, so to me it feels like traders are still playing “catch-up” from the Fed meeting. Traders are trying to gauge the forward path for interest rates this year. A hawkish Fed was not anticipated by market participants at the beginning of 2026. Furthermore, new Fed Chair Warsh made it very clear that he plans to challenge the status-quo at the Fed, and he outlined an ambitious plan to overhaul the way the Fed approaches monetary policy. I believe the uncertainty surrounding what Mr. Warsh has planned is adding to the upward pressure on rates.

The second reason rates are moving higher this morning is lingering uncertainty surrounding the war in the Middle East. Yes, the war news has been positive recently and oil prices are dropping. However, traders understand that the real negotiations now begin in earnest. I think traders will remain on edge during the 60-day negotiation period between the US and Iran.

Rates are likely to ease back down as progress is announced and oil prices retreat further. I have been saying that for a while. However, we have yet to see a material decline in rates! Market participants clearly remain nervous and apprehensive about the negotiations between the two sides – market participants are in no way ready to declare the situation “resolved”. That is keeping upward pressure on rates – at least for the time being.

Despite the progress toward peace in the Middle East, SOFR swap rates remain at or very close to the 12-month highs – that is keeping the pressure on interest rate cap premiums. I think last week’s hawkish Fed meeting is a big reason for the continued upward pressure on rates, particularly on the Fed-sensitive short-end of the curve.

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.Developments in 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 ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~3-5 bps. 5Y and 10Y SOFR swap rates are trading up ~3-5 bps this morning. The very back-end of the swap curve is currently trading up ~3-5 bps from Thursday’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 TICK HIGHER AS MARKET REGROUPS

SOFR swap rates are ticking higher this morning as market participants regroup to contemplate and monitor developments in the Middle East, while simultaneously grappling with a hawkish pivot by the FOMC. As we begin the week the market “hawks” are nudging rates higher. Rates across the curve are likely to remain biased to the upside until we see sustained progress towards lasting peace between the US and Iran. Short-end rates are likely to be more volatile (and biased higher) until we get more clarity on the direction of US monetary policy.

SOFR swap rates are trading 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 ~4.089%(+87.9 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.998%(+77.8 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.092%(+57.2 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, 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 6/22/2026

• Current 1-Month Term SOFR = 3.64320% (Prior Reset: 3.63903%)

• Cap premiums increased last week due primarily to a “post-FOMC” uptick in SOFR swap rates

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.