Rates Drift Lower on Improved Market Sentiment, Lower Oil Prices

Flash Update: US RATE MARKETS – WEDNESDAY JUNE 24, 2026

• UST yields and SOFR swap rates are edging lower this morning; Lower crude oil prices and an improved “Middle East” outlook are the primary catalysts

• Oil prices continue to retreat, and market sentiment has dramatically improved as the two sides continue to negotiate toward a peace settlement

• The US/Iran conflict remains the primary driver for the rate markets; Traders continue to monitor regional developments

• ‘AI’ sector names due to report earnings this week will also be on the market’s radar; Micron Technologies reports this afternoon

• Next up for data: May PCE, May Personal Income & May Personal Spending data will be released tomorrow, 6/25 at 8:30 AM

• Short-term SOFR swap rates are trading down ~2-5 bps this morning, depending on tenor

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

• Long-end SOFR swap rates are down ~5-6 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are edging lower this morning as market participants monitor mostly positive 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. Brent crude oil fell 3% to dip below $75 a barrel for the first time since the start of the war in the Middle East. Additionally, more tankers are openly crossing the Strait of Hormuz, a very positive signal that tensions are easing in the region. Lower crude oil prices pushed the cost of diesel fuel in the US below $5 a gallon for the first time since mid-March. Markets are gaining confidence that the war-induced inflation risk is finally abating, hence the lower rates we have seen since Monday.

Market participants will see May PCE data released tomorrow at 8:30 AM. Given the Fed’s focus on inflation, traders will be paying close attention to the PCE results. They will be looking for signs that higher inflation has not become entrenched due to higher energy prices. PCE is expected to come in above expectations, although the general feeling is that May could be the “peak” for war-induced inflation. I do not expect traders to overreact to the May PCE data, but I do think a strong number likely keeps the Fed on the sidelines for the rest of the year. Expectations for May PCE are as follows: Headline MoM, 0.5% (vs. 0.4% the prior month); Headline YoY, 4.1% (vs. 3.8% prior); Core MoM, 0.3% (vs. 0.2% prior); Core YoY, 3.4% (vs. 3.3% prior). May Personal Income (0.4% expectation) and Personal Spending (0.6% expectation) will also be released tomorrow morning at 8:30 AM.

“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.

• 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 down ~2-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~3-5 bps. 5Y and 10Y SOFR swap rates are trading down ~3-5 bps this morning. The very back-end of the swap curve is currently trading down ~5-6 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: 9:00 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 | 9:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES LOWER ON IMPROVED MARKET SENTIMENT AND DIP IN OIL PRICES

SOFR swap rates are edging lower this morning as tensions in the Middle East continue to ease, leading to lower oil prices, and lower rates. Traders continue to monitor developments in the Middle East, while simultaneously grappling with a potentially hawkish pivot by the FOMC. Overall, we are seeing lower rates this week due to lower crude oil prices and a dramatically improved market sentiment.

Despite the slight decline in rates this week, SOFR swap rates are still trading very close to the 12-month highs. We have seen some small rate relief this week – the 2Y swap rate opened the week at 4.045% and is currently trading at 4.026%.

Although market sentiment surrounding the Middle East has improved dramatically over the past week, traders are by no means ready to declare the situation “resolved”. I think market sentiment is best described currently as “cautiously optimistic”. Long-end swap rates are likely to drop disproportionately to short-end rates as inflation pressure eases.

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 ~4.026%(+81.6 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.938%(+71.8 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.034%(+51.4 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 6/24/2026

• Current 1-Month Term SOFR = 3.64834% (Prior Reset: 3.64338%)

• Cap premiums have drifted lower this week due to a slight dip in SOFR swap rates

• Rate volatility remains relatively subdued as the market weighs various catalysts

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.