Strong May Employment Report Lifts Rates

Flash Update: US RATE MARKETS – FRIDAY JUNE 5, 2026

• UST yields and SOFR swap rates jumped this morning as the May Employment Report significantly beat expectations

• The data released this morning signals the US labor market remains solid, freeing the Fed to focus on the inflation threat

• Market pricing now reflects that traders expect the next Fed “move” to be a rate hike…perhaps as early as October

• The US and Iran showed little progress toward a peace plan this week; Clashes between the two sides continue

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

• Hope remains that the two sides are moving toward an “interim” agreement

• Next up for key data: May CPI results are due Wednesday, 6/10 at 8:30 AM

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

• Short-term SOFR swap rates are trading up ~7-10 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~5-8 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 jumped higher this morning on the back of a much stronger than expected May Employment Report. The data released this morning showed job growth remains solid and unemployment low. There was some market trepidation that a surprise “weak” jobs report could derail talk of a Fed rate hike and open the door for a potential rate cut down the line to bolster the jobs market. The strong May data shut that down – market pricing now reflects a Fed rate hike as early as October of this year. Bottom line, the strong employment data frees the Fed to focus on the inflation threat created by the conflict in the Middle East. Unless the conflict is resolved quickly from here, I expect we will start to hear a lot more chatter about when the FOMC will need to raise rates. My view today: the Fed will be on indefinite hold (likely until December) until they can ascertain if the inflation threat is transient or will become more entrenched.

From my perspective, the focus on inflation means the overall “rate markets theme” we have been tracking recently will continue – 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 vantage point, the only way we will see materially lower rates and talk of a Fed rate hike subside 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. We are seeing the hard evidence of that fact this morning.

“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 ~7-8 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~8-10 bps. 5Y and 10Y SOFR swap rates are trading up ~5-8 bps on the day. The very back-end of the swap curve is currently trading up ~3-5 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: 9:30 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 & 2C: SOFR SWAP RATES JUMP ON STRONG JOBS DATA

SOFR swap rates moved higher this morning on a much stronger-than-expected May Employment Report. Expect rates to remain biased higher for as long as the war-induced inflation risk remains front-and-center for market participants, and the Fed.

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 ~3.997%(+78.7 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.990%(+77.0 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.129%(+60.9 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 2C:A Dramatic Shift: Market Pricing Now Favors Fed Rate Hike as Next FOMC “Move”

Source: Bloomberg, LLP | CURRENT MARKET MONETARY POLICY ADJUSTMENT EXPECTATIONS THROUGH 2027

CHART 3 & 3A: MAY EMPLOYMENT REPORT RECAP – STRONG JOBS DATA PUSHES RATES HIGHER

US job growth topped all forecasts in May, and the unemployment rate held steady at 4.3%. Nonfarm payrolls increased 172,000 last month after upward revisions to the prior two months, marking the strongest three-month advance in more than two years. The jump in hiring was led by the leisure and hospitality sectors, which added 70,000 jobs, the most in more than three years. This data released this morning provides the clearest signal yet that the US labor market may be breaking out of a prolonged slump in hiring.

CHART 3:Detailed May Employment Report Recap

Source: Bloomberg, LLP | MAY EMPLOYMENT REPORT RECAP

CHART 3A:Historical Employment Data

Source: Bloomberg, LLP | HISTORICAL EMPLOYMENT 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 6/5/2026

• Current 1-Month Term SOFR = 3.61356% (Prior day: 3.61264%)

• 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.

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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.