Rates Dip as CPI Beat Expectations

Flash Update: US RATE MARKETS – TUESDAY JULY 14, 2026

• UST yields and SOFR swap rates moved lower this morning after a better-than-expected June CPI print helped sooth fears of an imminent Fed rate hike

• Headline CPI fell for the first time since 2020, while Core CPI remained unchanged

• The positive CPI data helped calm a jittery market that is laser focused on inflation – the positive CPI data likely takes a July rate hike off the table for the Fed

• The US/Iran conflict remains a primary driver for the rate markets – crude oil is sitting at ~$87 a barrel

• Renewed hostilities between the US and Iran have cast doubt on the ceasefire agreement and rekindled fear of a return to all-out war

• Next up for data: June PPI will be released on Wednesday, 7/15 at 8:30 AM; June Retail Sales will be released on Thursday 7/16 at 8:30 AM

• FOMC Chair Warsh delivers his semi-annual testimony in Washington DC beginning this morning at 10:00 AM

• The next FOMC rate decision is due on Wednesday, July 29th at 2:00 PM

• Short-term SOFR swap rates are trading down ~8-10 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~4-7 bps currently, depending on tenor

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

Good morning – US Treasury yields and SOFR swap rates are moving lower this morning on a much better-than-anticipated June CPI result. Headline CPI dropped for the first time in six years, and Core CPI was unchanged. The positive CPI results alleviate some of the market anxiety surrounding the prospects for higher inflation. The surprise drop in CPI probably takes a July rate hike off the table. That said, I do not believe we are out of the woods just yet regarding the risk of higher inflation. The drop in June CPI can be largely traced to lower prices at the pump. Should oil process begin to rise materially again, I am not sure how long reduced gasoline prices will last. For now, the market was encouraged by the CPI data, leading to lower rates this morning across the curve. The rate decline this morning is most pronounced on the Fed-sensitive short end of the curve.

In other news, Fed Chair Kevin Warsh begins his semi-annual testimony in Washington DC this morning at 10:00 AM. He speaks to the House Financial Services Committee this morning and will present to the Senate Banking Committee tomorrow at 10:00 AM. This is a highly anticipated event – Warsh’s first official testimony since taking the reigns as Fed Chairman. This morning via a pre-released statement, Warsh said that “the members of our committee have no tolerance for persistently elevated inflation”. He added: “And we share a resolute commitment to restoring price stability.” That certainly sounds like a Fed that is getting ready to hike. It will be interesting to see if Warsh’s comments will spook the market, or sooth it further. The market is feeling upbeat after today’s positive CPI data – we will see if Warsh throws a wet blanket on that optimism. Odds for a July Fed rate hike have dropped to ~20% from ~40% yesterday!

Overnight, the conflict in the Middle East overnight remained relatively, though fresh military clashes between the two sides is keeping tensions elevated. Crude oil prices have quietly crept back up to ~$87 a barrel. Traders will continue to anxiously monitor the situation – particularly the price of oil and the level of tanker traffic through the Strait of Hormuz (or lack thereof). The situation in the Middle East will remain a primary market catalyst for the foreseeable future.

Tomorrow, traders will see June PPI results. Based on the reaction to today’s CPI release, it is safe to say that market participants will be paying very close attention to the June PPI results. A better-than-expected print would bolster optimism that inflation will remain in check, despite the disruption to the energy markets. The general feeling was that the worst of the oil induced inflation pressure occurred in May, the peak of the conflict. Expectations for June PPI are as follows: Headline MoM, 0.0% (vs. 1.1% the prior month); Headline YoY, 6.2% (vs. 6.5% prior); Core MoM; 0.3% (vs. 0.4% prior); Core YoY, 5.2% (vs. 4.9% prior).

Prepare for a potential uptick in rate volatility the remainder of the 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.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading down ~9-10 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~8-10 bps. 5Y and 10Y SOFR swap rates are trading down ~4-7 bps this morning. The very back-end of the swap curve is currently down ~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: 9:45 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 DIP ON BETTER-THAN-EXPECTED JUNE CPI DATA; JULY FED RATE HIKE ODDS DROP

SOFR swap rates are moving lower this morning off the back of a better-than-expected June CPI result. The unexpected drop in CPI helped to sooth inflation jitters and reduced the odds for a Fed rate hike in July, pushing rates lower across the curve.

The market will now prepare for Fed Chair Warsh’s testimony in Washington DC and the key economic data set for release the remainder of the week (PPI, Retail Sales). The continuing uncertainty regarding the US-Iran war will continue to weigh heavily on markets for the near term.

US-IRAN WAR IMPACT: 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 ~4.041%(+83.1 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.008%(+78.8 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.146%(+62.6 bps).

CHART 2:Short-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; YTD 2026

CHART 2A:Long-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES; YTD 2026

CHART 2B:US Treasuries: Yield Overview – Year-To-Date 2026

Source: StreetStats | US Treasury Yields; YTD 2026 (30Y UST yield – top line; 10Y UST yield – middle line; 2Y UST yield – bottom line)

CHART 3, 3A & 3B: JUNE CPI RECAP: CONSUMER INFLATION DATA BEATS EXPECTATIONS, SOOTHING INFLATION FEARS

Headline CPI declined for the first time in six years, and Core CPI was unchanged in June, helping to sooth market jitters regarding higher inflation. The favorable CPI result likely takes some pressure off the Federal Reserve to raise interest rates. Headline CPI fell an unexpected 0.4% from May and was up a better-than-expected 3.5% from a year earlier. Core CPI, which excludes more volatile food and energy prices, remained unchanged from May and up a better-than-forecasted 2.6% from a year earlier.

The CPI report suggests a slide in gasoline prices offered consumers relief as the worst of the “war-induced” energy shock began to fade. FOMC voting members are likely to welcome the data ahead of the US central bank’s upcoming meeting at the end of the month. That said, a new upturn in oil prices amid renewed hostilities between the US and Iran risks prolonging the inflationary fallout from the conflict.

CHART 3:June CPI Recap: Headline CPI Drops for First Time Since 2020, Core CPI Unchanged

Source: Bloomberg, LLP | JUNE CPI RECAP

CHART 3A:Historical CPI Data - Headline & Core

Source: Bloomberg, LLP | HISTORICAL CPI DATA

CHART 3B:Fed Rate Hike Expectations Drop on Strong CPI Data

Source: Bloomberg, LLP | FED RATE CUT EXPECTATIONS THROUGH MARCH 2028

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 7/14/2026

• Current 1-Month SOFR = 3.67637%(Prior Day’s Reset: 3.65942%)

• Fresh hostilities between the US and Iran are increasing market uncertainty and fear of higher inflation

• Rate volatility remains relatively subdued as markets weigh a host of market variables – however, the subdued rate volatility may not last if conditions in the Middle East worsen

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.