Rates Drift Lower as Traders Seek Weekend Safe Haven

Flash Update: US RATE MARKETS – FRIDAY JULY 17, 2026

• UST yields and SOFR swap rates are drifting lower this morning as traders seek “safe haven” from massive market uncertainty

• Escalating military clashes in the Gulf and a tech-centered equity market selloff are prompting traders to park assets in safe-haven US Treasuries as we head into the weekend

• Cap purchasers got some modest premium relief this week after the release of better-than-expected consumer and producer inflation data

• The 2-Year SOFR swap rate closed Monday night at ~4.14% - it is currently trading at ~3.98% (~-16 basis points)

• The US/Iran conflict remains the primary driver for the rate markets; The price of crude oil is trading at ~$87 a barrel

• Surging hostilities between the US and Iran are once again spooking global markets and edging oil prices higher

• Traders will continue to pay close attention to developments in the tech-sector; There is growing fear that the equity markets are due for a correction

• Next up for key data: June PCE prints on Thursday, 7/30 at 8:30 AM

• The Fed’s external communications blackout begins tomorrow; Fed officials will be in the “quiet period” until 7/31

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

• Short-term SOFR swap rates are trading down ~1-2 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~2-4 bps currently, depending on tenor

• Long-end SOFR swap rates are trading down ~3-4 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are moving a touch lower this morning. The short end of the curve is trading close to unchanged, maybe down a bp or two. The medium and long-term sectors of the curve are down a few bps this morning. I believe that most of the slight dip in rates today represents a flight-to-quality as we head into the weekend. Mounting uncertainty surrounding the conflict in the Middle East, combined with anxiety about high tech-sector equity valuations, are prompting traders to park assets in UST’s and see what happens over the weekend. Rates may be biased lower for today as we head into the weekend.

The drop in SOFR swap rates this week (on the back of better-than-expected inflation data) has provided some minor premium relief for cap purchasers. Volatility remains subdued, which is also helping to keep cap prices in check.

Right now, the market’s focus remains squarely on the Middle East. However growing trepidations regarding equity markets, the Fed’s path forward and higher inflation are creating a situation that makes it challenging for traders to determine where interest rates are heading.

This morning, we will see Univ. of Michigan Consumer Sentiment data released at 10:00 AM. I do not expect the data to have a material impact on rates.

Fed officials enter the pre-meeting “quiet period” tomorrow. We don’t really see any key data ahead of the Fed rate decision on the 29th. The lack of Fed speakers and key economic data next week makes it likely the market’s focus will remain on the US-Iran war.

“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 ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~2-3 bps. 5Y and 10Y SOFR swap rates are trading down ~2-4 bps this morning. The very back-end of the swap curve is currently down ~3-4 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 DRIFT LOWER AS UNCERTAINTY PROMPTS TRADERS TO SEEK WEEKEND SAFE HAVEN

SOFR swap rates are drifting a touch lower this morning, as jittery traders shift assets into safe-haven US Treasuries. Massive uncertainty surrounding the situation in the Middle East, the sustainability and veracity of tech sector equity valuations and the path forward for the FOMC are prompting traders to park assets in safe-haven US Treasuries this morning. Earlier this week, soft inflation data relieved markets and led to lower swap rates. However, a surge in Middle East hostilities put pressure on oil prices and halted commercial tanker traffic through the Strait of Hormuz – here we are...again! The ever-shifting rhetoric has fatigued markets that are simply looking for clear direction and a clear path forward to peace. We seem far away from that objective right now.

I expect volatility to remain subdued – traders have grown adept at ignoring the rhetoric and noise and focusing on the hard facts…or lack thereof! That patience is preventing more extreme, whip-saw reaction to announcements and rumors. Rate volatility catalysts on the horizon include: A decisive end to the conflict; A tech-led equity market correction; A major increase in hostilities beyond what we have seen to date.

I also expect rates, overall, to remain biased higher. FOMC Chair Warsh talked a “big game” this week in Washington DC – he made it clear inflation will not be tolerated – that is likely to keep upward pressure on the Fed-sensitive short-end of the curve.

Odds for a Fed rate hike at the July meeting have dropped to ~10.2% this morning, given the positive inflation data we saw this week. Odds for a rate hike in September are currently sitting at ~46.5%. One thing is certain: Expectations for the Fed and for the path forward for interest rates are changing and evolving almost every day!

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 ~3.979%(+76.9 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.951%(+73.1 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.100%(+58.0 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 2C: Historical Volatility: MOVE (Rate Vol.) and VIX (Equity Vol.) – Year-To-Date 2026

Source: StreetStats | HISTORICAL RATE (MOVE) AND EQUITY (VIX) VOLATILITY – YTD 2026

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 7/17/2026

• Current 1-Month SOFR = 3.66961%(Prior Day’s Reset: 3.67946%)

• Fresh hostilities between the US and Iran are increasing market uncertainty regarding the path forward for interest rates

• Rate volatility remains relatively subdues given the myriad market forces at work

• The yield curve remain flat – the 2’s/10’s swap spread is currently ~12 bps.

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:RATE MARKETS ARE VOLTILE - 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.