Rates Tick Higher as Fresh Midle East Clashes Drive Oil Prices Higher

Flash Update: US RATE MARKETS – WEDNESDAY JUNE 3, 2026

• UST yields and SOFR swap rates are ticking higher this morning as traders monitor US-Iran “peace plan” progress…or lack thereof

• Fresh military clashes between the two sides overnight increased tension in the region and underscored the fragility of the ceasefire

• Brent crude oil ticked higher this morning due to renewed hostilities between the US and Iran

• Hope remains that the two sides are moving toward an “interim” agreement – that is the primary reason rates are not even higher this morning

• The US/Iran war remains the primary driver for the rate markets this week

• Next up for key data: The May Employment Report is due Friday 6/5 at 8:30 AM

• The April JOLTS jobs report beat expectations; Job Openings were significantly better-than-expected, while Layoffs posted lower-than-forecasted

• The next FOMC rate decision is due on Wednesday, June 17th at 2:00 PM

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

• Medium-term SOFR swap rates are up ~4-5 bps currently, depending on tenor

• Long-end SOFR swap rates are up ~2-3 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are ticking higher this morning, as fresh clashes in the Middle East are increasing market fear and uncertainty. Traders are waiting (patiently, I might add) for signs that a deal that would end the conflict and reopen the Strait of Hormuz remains on track. However, the headlines and rhetoric the past few days have certainly cast doubt on hopes an “interim” peace plan is imminent.

The market faces a difficult crossroads. Traders are torn between unprecedented euphoria around the economic potential of AI and a war that has brought about a historic disruption in energy markets. Recent indicators have shown that economic growth remains solid, so far. The current uncertainty about how close a deal may be means market participants must consider that crude prices could retreat dramatically or surge to the highest levels in years. Right now, the market’s focus remains squarely on higher inflation. For the moment, the economic growth potential of AI is tempering fears of slower economic growth.

Overall, rates have been holding mostly steady recently as market participants hold out hope that a peace plan between the US and Iran will be reached soon. However, rates are quietly creeping higher this week. The 2-year swap rate began the week at 3.87% and is currently trading at ~3.95% - well within the recent trading range but moving toward the top of the range. Rates are likely to remain in somewhat of a holding pattern until we get the next substantive update on progress towards a peace plan between the US and Iran. Traders are also likely to continue to “take their cue” from the direction of oil prices. In short, as go oil prices, so go rates. If I had to choose a view, I would say that rates are still biased higher for the short-term (this week).

Bottom line: The overall “rate markets theme” we have been tracking recently continues – tangible progress towards a US/Iran peace deal and/or lower oil prices will likely lead to lower rates and more stable markets. Conversely, if we see indications that the peace deal will not happen, is significantly delayed or worse, hostilities resume, we are likely to get higher oil prices and higher rates. From my perspective, the only way we will see materially lower rates is a peaceful resolution to the US-Iran conflict, and soon. Make no mistake, rates can easily move higher from here if peace talks collapse or hostilities resume.

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.The US/Iran “war” will continue to dominate market sentiment this week.

• Kevin Warsh begins his term as Fed Chairman. He will oversee his first meeting as FOMC Chairman in June. From the market’s perspective, there are still many questions surrounding both Mr. Warsh’s monetary policy views and his plans for the central bank, and what is next for Mr. Powell.

• 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 ~2-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~4-5 bps. 5Y and 10Y SOFR swap rates are trading up ~4-5 bps on the day. The very back-end of the swap curve is currently trading up ~2-3 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 TICK HIGHER AS TRADERS MONITOR THE LATEST WAR DEVELOPMENTS

SOFR swap rates are drifting a touch higher his morning, as the Middle East peace plan continues to get bogged down in the details. Fresh clashes between the US and Iran overnight led to an uptick in crude oil prices and interest rates this morning. Market participants are growing increasingly frustrated by the lack of tangible progress on a US-Iran peace plan.

Traders have become increasingly skilled at cutting through the rhetoric and focusing on the facts. That said, traders are clearly losing patience with the delays, resulting in a temptation to take rates higher in the face of increased inflation risk. President Trump said earlier today that the US could have the blockade lifted from the Strait of Hormuz by Labor Day. That is definitely not the near-term “finality” that the market would like to see!

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 ~3.949%(+73.9 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.946%(+72.6 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.091%(+57.1 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 Since November 2025

Source: StreetStats | US Treasury Bill, Note & Bond Yields; Prior 6-Months

CHART 3, 3A & 3B: FRESH CLASHES IN THE MIDDLE EAST PUSH OIL HIGHER; LACK OF PROGRESS ON A PEACE PLAN LEADS TO MARKET FRUSTRATION

The US and Iran clashed again overnight, with Kuwait and Bahrain caught in the crossfire of one the most serious flare-ups since a ceasefire went into effect in early April.

The latest developments follow days of rising tension between the two sides, which threatens to derail US-Iran talks about an “interim” peace deal. Although the sides have stated that they have agreed on a “rough framework” that should extend their truce by approximately two months and reopen the Strait of Hormuz, negotiations over the final details are dragging on.

Oil prices, and interest rates, have risen in tandem with Iran-US tensions. The price of Brent crude oil climbed 3% on Wednesday morning to ~$99 a barrel, extending its gains since last Friday to almost 7%. That has reversed most of the oil benchmark’s losses from last week, when most market participants anticipated a peace deal was imminent. As we know, the peace plan is still in limbo, and market fear and uncertainty are building. Thus far, that means higher rates.

CHART 3:Brent Crude Oil Rises on Fresh Middle East Clashes Between the US and Iran  

Source: Bloomberg, LLP | PRICE OF BRENT CRUDE OIL SINCE START OF US-IRAN CONFLICT - FEB 27, 2026

CHART 3A:Peace in the Middle East Elusive as the US and Iran Remain Far Apart

Source: Bloomberg, LLP | US-IRAN PEACE PLAN STICKING POINTS

CHART 3B:Strait of Hormuz Traffic Grinds to a Halt

Source: Bloomberg, LLP | COMMERCIAL TRAFFIC THROUGH STRAIT OF HORMUIZ SINCE ONSET OF US-IRAN WAR

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 6/3/2026

• Current 1-Month Term SOFR = 3.61931%(Prior day: 3.62123%)

• Cap premiums have drifted higher this week as swap rates march higher

• Traders are patientlywaiting for a substantive update on a Middle East peace plan

Pricing Matrix:1-Week Movement In 1-Month Term SOFR Cap Premiums

*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.