Rates Tick Higher as Traders Anxiously Monitor Developments in the Middle East

Flash Update: US RATE MARKETS – MONDAY JUNE 29, 2026

• UST yields and SOFR swap rates are ticking higher as traders and investors anxiously monitor developments in the Middle East

• Hostilities between the two sides flared up over the weekend, and commercial traffic through the Strait of Hormuz slowed dramatically

• The US and Iran have since pledged to end hostilities and resume peace talks, providing some relief to jittery markets

• President Trump said peace talks are set to resume in Qatar on Tuesday

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

• 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 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 trading flat to down ~1 bp this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are ticking higher this morning as market participants anxiously monitor ongoing developments in the Middle East. Hostilities between the US and Iran flared over the weekend, edging oil prices higher and casting doubt on the long-range prospects for peace negotiations between the two sides. Brent crude oil climbed to as high as $73 per barrel this morning. While the two sides have since agreed to halt the attacks, the pace of commercial shipments through the Strait of Hormuz slowed dramatically, and shipowners are likely to remain wary of crossing the strait, at least for the near term. Right now, the US-Iran conflict remains front-and-center for markets.

Traders will also shift their focus this week to the annual gathering of global central bankers in Portugal, where Fed Chairman Kevin Warsh will make his “public debut” outside the US. Aside from hints on the direction of interest rates, questions over financial stability, including those linked to the AI boom, will be among the themes under discussion. Another prominent event this week will be the monthly US jobs report, due for release on Thursday, 7/2 at 8:30 AM. This is a busy week for economic data – markets will see a host of secondary data released this week, culminating in the June Employment Report on Thursday. Today is light on economic data, but the highlight for tomorrow will be the release of the May JOLTS jobs report at 10:00 AM.

Overall, rates are still lower over the past ten days as markets remain optimistic that the US and Iran will somehow find a path to peace. The 2-Year SOFR swap rate closed on Friday, 6/19 at 4.046% - it is currently trading at ~3.960% (-8.6 bps). The drop in SOFR swap rates, coupled with relatively subdued rate volatility has provided some relief on cap premiums that spiked dramatically during the peak of the US-Iran conflict.

“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 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 this morning. The very back-end of the swap curve is currently trading flat to down ~1 bp from Friday’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: 9:45 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 | 9:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES DRIFT HIGHER AS TRADERS NERVOUSLY MONITOR DEVELOPMENTS IN THE MIDDLE EAST

SOFR swap rates are drifting higher this morning as an anxious and jittery market monitors the situation in the Middle East. Fresh hostilities over the weekend sent oil prices higher and cast doubt on the prospect for peace between the two sides. Fortunately, a cessation of hostilities was reached between the two sides, and further peace talks have been confirmed for later this week. That announcement was enough to calm markets, although market tension remains elevated. As the war has progressed, traders have gotten better at parsing the truth from the rumor or rhetoric. That is helping to prevent volatile, whip-saw market movements. I think that is the primary reason we are seeing markets stay patient – there is still a belief that a peace agreement can be reached relatively quickly between the two sides, despite constant rumors and shifting rhetoric. That said, the main thing global traders want to see is traffic through the Strait of Hormuz get back to normal levels as soon as possible.

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 ~3.960%(+75.0 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.853%(+63.3 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~3.966%(+44.6 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, Year-To-Date

Source: StreetStats | US Treasury Yields; Year-To-Date (30Y UST yield – top; 10Y UST yield, middle; 2Y UST yield, bottom)

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 6/29/2026

• Current 1-Month Term SOFR = 3.64392% (Prior Reset: 3.65261%)

• 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

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 frequent 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.