Rates Tick Lower as PCE Inflation Data Prints "As Expected"

Flash Update: US RATE MARKETS – THURSDAY JUNE 25, 2026

• UST yields and SOFR swap rates are ticking lower this morning after the May PCE inflation report printed “as expected”

• May PCE results met expectations, but inflation is now at the highest level in three years – YoY Headline PCE printed at 4.1%

• Personal Income and Personal Spending data for May surpassed expectations, signaling Americans are powering through the US-Iran conflict

• Q1 GDP was revised higher to 2.1% (from 1.6%); However, the Core GDP Price Index increased to 4.4%

• 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 a 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

• Next up for data: The June Employment Report will be released on Thursday, July 2 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 ~2-4 bps 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 are ticking lower this morning, as traders took comfort from an “as expected” May PCE inflation report. The PCE data helped ease fears of runaway inflation due to energy market disruptions. The inflation data released this morning also dragged on Fed rate-hike expectations for this year. Traders were pricing in ~36 bps of rate hikes this year prior to the numbers – market pricing now implies ~32 bps of Fed rate hikes this year. Overall, the “as expected” PCE print was a relief to traders, but market participants realize inflation is still running too hot for the Fed’s liking. Keep in mind that PCE is the Fed’s preferred inflation gauge. The “Fed-sensitive” short-end of the curve has seen the biggest decline this morning.

Regarding the Middle East, the latest updates on negotiations between the US and Iran have been largely positive. Crude oil prices continue to retreat materially, which is also adding to relief on the inflation front. (Crude oil briefly dipped under $70 a barrel earlier today). Markets are gaining confidence that the war-induced inflation risk is finally abating, hence the lower rates we have seen this week.

“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.

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 ~4-5 bps. 5Y and 10Y SOFR swap rates are trading down ~2-4 bps this morning. 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: 10:00 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 | 10:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK LOWER ON “AS EXPECTED” MAY PCE INFLATION DATA

SOFR swap rates are edging lower this morning after the much-anticipated May PCE inflation report printed “as expected”. The data comes as a relief to market participants on edge over the inflation impact of the US-Iran conflict. Traders, however, are not getting too carried away this morning – inflation is now at the highest level in three years. That fact is a concern for market participants and investors. I think this morning’s downtick in rates is simply the market breathing a sigh of relief. The “as expected” PCE data, coupled with the perceived progress toward peace in the Middle East, is helping to ease market concerns about a sustained increase in inflation.

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 ~3.956%(+74.6 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.859%(+63.9 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~3.962%(+44.2 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

CHART 3 & 3A: MAY PCE RECAP: PCE DATA PRINTS “AS EXPECTED”, BUT INFLATION REACHES 3-YEAR HIGH

Headline YoY PCE rose 4.1% in May, the most since April 2023. Core PCE, which excludes more volatile food and energy prices, rose 3.4% from a year earlier. Overall, rate markets received the news favorably, and rates ticked lower. There had been speculation in the market that the PCE data would print significantly above expectations.

The PCE data released this morning, however, is likely to keep pressure on the FOMC to raise interest rates this year. Yes, inflation is not running away to the upside, but we are running at the highest inflation level in three years. Furthermore, despite the recent peace talks between the US and Iran that have sent oil prices significantly lower, economists expect the costs of an array of products and services to continue rising as the initial “war-induced” energy shock works its way through supply chains.

US consumer spending accelerated in May despite prices rising at the fastest pace in more than three years. That tells me resilient US citizens are powering through the fallout from the Iran war.

Bottom line, the PCE results this morning will help ease fear of “war-induced” runaway inflation – however, the 4.1% YoY result is still too hot for the Fed.

CHART 3:May PCE Recap: PCE Prints “As Expected”, but Still Running Hot

Source: Bloomberg, LLP | MAY PCE DATA RECAP

CHART 3A:Historical PCE & Personal Spending Data: US Consumers Remain Resilient, PCE at Three-Year High

Source: Bloomberg, LLP | HISTORICAL PCE & REAL PERSONAL SPENDING DATA

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 6/25/2026

• Current 1-Month Term SOFR = 3.65178% (Prior Reset: 3.64834%)

• 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 a host of market variables

• Crude oil prices continue to decline, providing another catalyst for lower 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.