Rates Mostly Steady as Traders Anxiously Monitor the Conflict in the Middle East

Flash Update: US RATE MARKETS – MONDAY JUNE 8, 2026

• UST yields and SOFR swap rates are mostly steady this morning as market participants anxiously monitor the situation in the Middle East

• 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 have shown little progress toward a peace plan recently, adding to market angst and uncertainty

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

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

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

• Medium-term SOFR swap rates are flat to down ~1 bp currently, depending on tenor

• Long-end SOFR swap rates are flat to up ~1 bp this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are holding mostly steady this morning as traders and investors anxiously monitor developments in the Middle East. Market participants begin the week grappling with renewed clashes in the Middle East, further dislocation in the energy markets, inflationary pressures that are bolstering the case for interest rate hikes and worries over whether the rally in tech stocks has run too far. We will also see key CPI data released on Wednesday 6/10. Fed officials are now within the “quiet period” ahead of next week’s FOMC meeting.

Swap rates surged on Friday after data showed the US labor market is on solid footing, and unemployment remains low. Rates settled down in the afternoon, but this morning we are still sitting at 12-month highs for SOFR swap rates. The strong May jobs data we saw Friday has essentially shut down all talk of a Fed rate cut – Warsh, or no Warsh. 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, not “if”. 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 war-induced 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.

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.

“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 ~1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading flat to down ~1 bp. 5Y and 10Y SOFR swap rates are trading flat to down ~1 bp on the day. The very back-end of the swap curve is currently trading flat to up ~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: 9:00 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 HOLD MOSTLY STEADY AS MARKET ASSESSES MIDDLE EAST DEVELOPMENTS

SOFR swap rates are holding mostly steady this morning, as market participants and investors anxiously monitor fresh clashes in the Middle East. Rates moved higher on Friday after a strong May Employment Report, and traders are holding on to those levels this morning. 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. SOFR swap rates are now sitting at 12-month highs across the curve. Markets appear to be taking a quick breather this morning to pause and assess what is next for rates.

The market will be on edge this week as traders wait for “peace” updates – there is the potential for sudden, increased rate volatility this week should a peace announcement be made, and substantiated. Actual progress (or results) toward peace between the US and Iran will likely push rates lower – a reopening of the Strait of Hormuz is the ultimate goal for market participants. To remove the war-induced inflation risk, we need to see oil flows return to normal ASAP, which should start to bring down prices at the pump.

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 ~3.998%(+78.8 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.986%(+76.6 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.122%(+60.2 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

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 6/8/2026

• Current 1-Month Term SOFR = 3.61196%(Prior Reset: 3.61356%)

• Lack of progress toward a peace accord and strong US employment data pushed rates materially higher last week

• Cap premiums continue to increase as SOFR swap rates march higher

• Traders continue to wait for a substantive update on a Middle East peace accord

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.

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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.