Markets Brace for FOMC Rate Decision

Flash Update: US RATE MARKETS – TUESDAY JULY 28, 2026

• UST yields and SOFR swap rates are a touch lower this morning as tensions ease in the Middle East

• The US and Iran extended their pause in hostilities for a fourth day, further easing tensions in the Middle East

• President Trump said that there are currently “very deep talks” underway with Iran; He also said he sees a “good chance” a deal with Iran can be reached

• Focus is also on critical discussions between Iran and Oman regarding reopening the Strait of Hormuz

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

• Recent developments in the Middle East have improved market sentiment as we head into the July FOMC meeting, hence the slight dip in rates this week

• Equity markets will also remain in focus as pressure on the tech sector increases – Chipmakers and AI names remain most vulnerable

• The Fed’s external communications blackout continues; Fed officials will be in the “quiet period” until 7/30

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

• Odds for a 25 bp rate hike tomorrow are sitting at ~31.5%

• FOMC Chairman Kevin Warsh will hold a post-meeting press conference tomorrow at 2:30 PM

• Next up for key data: June PCE and 2Q Advanced GDP data print on Thursday, 7/30 at 8:30 AM

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

• Medium-term SOFR swap rates are down ~2-3 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 ticking a touch lower this morning as tensions in the Middle East continue to ease. Traders are proceeding cautiously – they will want to see sustained progress towards peace and a continued drop in oil prices before being tempted to take rates materially lower. Markets are also bracing for the highly anticipated Fed rate decision due tomorrow at 2:00 PM. The FOMC kicks off their two-day July meeting this morning. About two thirds of the market believes the Fed will keep the benchmark rate unchanged – odds for a 25 bp rate cut tomorrow are holding at ~31.5%. Odds for a July rate hike ticked higher recently as tensions flared between the US and Iran but have subsequently settled back down.

Lower crude oil prices continue to help curb inflationary angst, with Brent crude oil holding at around $87 a barrel. The global benchmark is holding relatively steady as the US and Iran extended their pause in hostilities. Focus will now turn to talks between Tehran and Oman over restarting traffic in the Strait of Hormuz. US President Donald Trump also made several upbeat statements this morning with respect to a resumption in negotiations between the two sides, further improving market sentiment.

Market participants will continue to monitor a variety of potential market catalysts. Continued uncertainty surrounding the conflict in the Middle East, anxiety about high tech-sector equity valuations and the surge in AI infrastructure spending, jitters surrounding the potential for a deluge of new tariffs and tomorrow’s Fed rate decision are all weighing on markets. The war in the Middle East, new tariffs and surging spending on AI all point to higher inflation.

Thus far, none of the other market “hot spots” have been able to wrest the “spotlight” away from the conflict in the Middle East for any sustained amount of time. This has largely been the case since the onset of the war. We will see if the Fed can steal some of the spotlight tomorrow!

Fed officials remain within the pre-meeting “quiet period” until July 30. We don’t really see any key data released ahead of the Fed rate decision tomorrow. I expect traders to keep one eye on the Fed and the other eye on the conflict in the Middle East. Some key economic data releases will grab the market’s focus later this week.

Fed Funds Forwards Imply a Rate Hike is Coming This Year

Source: Bloomberg, LLP | CURRENT FED FUNDS IMPLIED FORWARDS

“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.

• Tariffs are once again in focus, as President Trump implements a new round of tariffs and threatens more are coming. This is the last thing global markets need right now – they are already grappling with massive inflation uncertainty due to the conflict in the Gulf. This is a developing story, so the market impact is undetermined currently.

• The possibility exists we may be facing another government shutdown soon. Lawmakers have reached a temporary compromise to avert a shutdown for now, but the threat of another government shutdown looms.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading down ~2-3 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 ~2-3 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: 9:30 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: SOFR SWAP RATES TICK LOWER AS MARKET SENTIMENT IMPROVES

SOFR swap rates are ticking lower again this morning, as tensions in the Middle East ease and the two sides appear ready to get back to the negotiating table. Market participants also continue to anxiously monitor a host of market forces at work. Cautious uncertainty surrounding the conflict in the Middle East, the sustainability and veracity of tech sector equity valuations and the path forward for the FOMC are making it extremely challenging to chart the path forward for swap rates currently.

I do expect volatility to remain subdued…for now. We are in the middle of summer trading and more importantly, traders have grown increasingly adept at ignoring the rhetoric and noise and focusing on the hard facts…or lack thereof! That is why the price of crude oil is so critical for the direction of interest rates – it is a tangible indicator traders can see in real time. Rate volatility catalysts on the horizon include: A decisive end to the conflict; A tech-led equity market correction; A major increase in US-Iran hostilities; A Fed rate hike this week.

Fed policy adjustment expectations continue to shift. Odds for a 25 bp Fed rate hike at the July meeting are now sitting at ~31.5%. That figure was at ~10.2% just ten days ago – and yes, it was also higher after hostilities between the US and Iran intensified.

Odds for a rate hike in September have been holding around 80% since last week (79.4% today), including a 23.2% chance for a 50 bp rate hike. 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 ~4.143%(+93.3 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.094%(+87.4 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.209%(+68.9 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

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 7/28/2026

• Current 1-Month SOFR = 3.73983%(Prior Day’s Reset: 3.74340%)

• Markets are bracing for tomorrow’s FOMC rate decision

• Rate volatility remains relatively subdueddespite the myriad market forces at work

• The swap curve remains flat – the 2’s/10’s swap spread is currently ~6.6 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.

CHART 3:Historical Volatility: MOVE (Rate Vol.- RED) and VIX (Equity Vol.- BLUE) – Year-To-Date 2026

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

^NOTE:RATE MARKETS CAN BE VOLATILE - 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.