Rates Mixed as Market Seeks Direction

Flash Update: US RATE MARKETS – THURSDAY JULY 30, 2026

• UST yields and SOFR swap rates are mixed this morning as traders digest fresh economic data and yesterday’s Fed rate decision

• Yesterday, the FOMC voted 9-3 to hold the benchmark overnight rate steady at 3.50% lower bound - 3.75% upper bound

• An escalation in military hostilities between the US and Iran is dampening hopes for a quick resolution to the conflict

• Renewed hostilities have driven oil prices higher; Brent crude oil, the market benchmark, ticked higher this morning to approach $93 a barrel

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

• 2Q GDP and PCE data released this morning was largely ignored by market participants

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

• The next FOMC rate decision is due on Wednesday, September 16th at 2:00 PM

• Odds for a 25 bp rate hike at the September FOMC meeting are currently sitting at ~59.4%

• Next up for key data: The August Employment report is due for release on Friday, 8/6 at 8:30 AM

• There is a full plate of secondary economic data due next week including ISM Manufacturing (8/3), JOLTS (8/4) & ADP Employment Change (8/5)

• Short-term SOFR swap rates are trading down ~4-5 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 up ~1-2 bps this morning, depending on tenor

Good morning – Short and medium-termUS Treasury yields and SOFR swap rates are moving lower this morning as market participants digest fresh economic data and the aftermath of yesterday’s Fed rate decision. The inflation-sensitive back end of the yield curve is up again this morning (~1-2 bps), further steepening the curve. Escalating hostilities between the US and Iran continue to loom over the market this morning, and oil prices are drifting higher. Rates do feel like they may remain biased lower today given the lack of Fed action yesterday and the mostly favorable economic and inflation data released this morning.

2Q Advanced GDP data released this morning showed the US economy grew at a weaker-than-expected 1.5% pace in the second quarter despite a pickup in consumer spending and solid business investment. Expectations had called for 2.0% Q2 economic growth. Core PCE rose by 3.3% in June from a year earlier, meeting expectations.

Overall, rates are holding relatively steady this morning as the market seeks direction. Market uncertainty regarding the path forward for interest rates remains at elevated levels – I expect uncertainty to remain elevated for the foreseeable future. Expect increased volatility and a steeper yield curve for the near term as traders sort through the myriad market forces currently at work.

FOMC JULY MEETING RECAP:

Yesterday, the FOMC voted 9-3 to hold the benchmark overnight rate steady. The “hold” was widely anticipated by the market. The Fed’s official statement was notably sparse and succinct. No forward guidance was given. Three committee members dissented on the vote in favor of a 25 bp rate hike. There was only a minor market reaction to the rate announcement – rates dropped a couple of basis points. The bigger news, by far, was Chair Warsh’s post-meeting press conference.

Regarding the press conference, I’ll try to be as succinct as I can. FOMC Chair Warsh repeatedly said inflation has been running above the central bank's 2.0% objective for the past five years. He also emphatically stated several times that he is resolute about fixing it – yet, for the second time, he opted to hold rates steady. Even more concerning, he refused to provide any, and I mean any, forward guidance. That had the effect of baffling and confusing the market, and it may have created a credibility issue for Warsh. The market reaction to the press conference was swift – short end rates dropped as traders gained confidence the Fed is moving in slow motion. Long end rates surged on renewed inflation fear and the yield curve steepened. 30-year Treasury yields reached the highest level since 2007, and the 2’s/10’s and 2’s/30’s spreads widened. Measures of the market's inflation expectations rose, signaling market participants believe that the Fed Chair has missed the mark so far.

On some level, Chair Warsh sounded to me like he believes he is running some kind of “grand experiment”, rather than controlling monetary policy for the world’s largest economy. Chair Warsh also mentioned several times that the committee spent a lot of time “studying and analyzing” inflation, and how inflation responds to a crisis. Rate markets did not react well to that. However, Warsh resisted calling Wednesday’s decision a “pause”, presenting it instead as a period of “watchful thinking, not watchful waiting.” Warsh emphasized that the FOMC expects to have substantially more information by the September FOMC meeting. The implication was that holding rates steady in July was not an endorsement of the current monetary policy stance so much as a decision to defer judgment until the Fed has a clearer read.

I also think the market is growing weary of all the “taskforce” chatter – the last thing the FOMC needs is subcommittees, and/or more bureaucracy. Bottom line, Warsh’s performance yesterday has the market on edge. Warsh’s endgame is an unknown at this point. However, based on his comments yesterday, it is clear that a dramatic reduction in Fed communication and forward guidance will be the norm going forward. We will see what the various FOMC members have to say as they begin to hit the tape post-meeting. I expect traders will be listening closely!

Fed policy adjustment expectations will likely continue to shift and possibly shift dramatically. Odds for a 25 bp Fed rate hike at the September meeting are now sitting at ~59.4%. That’s down from ~80% just two weeks ago. Odds for a rate hike in October are holding around 70%, including an ~16% chance for a 50 bp rate hike.

We are clearly in a new era for the FOMC and perhaps, for US monetary policy. I believe the market is in for more turbulence as traders get used to the new central bank regime and how it operates.

Does FOMC Chairman Warsh Have a Market Credibility Issue?

Source: Bloomberg, LLP | US 30-YEAR “LONG BOND” YIELD SINCE 2007

“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 ~4-5 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~4-5 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 up ~1-2 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 MIXED – SHORT END RATES DIP, LONG END DRIFTS HIGHER – CURVE STEEPENS

SOFR swap rates mixed this morning – short and medium-term rates are down, mostly due to the lack of Fed action yesterday. Long-end rates are a touch higher this morning, as that lack of Fed action fueled inflation fears. The market mostly shrugged off the economic data released today. Focus is likely to remain on the US-Iran war, with the added uncertainty created by the tight-lipped FOMC.

Market participants will continue to anxiously monitor the host of market forces at work. Cautious uncertainty surrounding the conflict in the Middle East, the sustainability and veracity of tech sector equity valuations, the growing US deficit, and the path forward for the FOMC are making it extremely challenging to chart the path forward for swap rates currently.

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 ~4.065%(+85.5 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.075%(+85.5 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.238%(+71.8 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: ECONOMIC DATA RECAP: JUNE PCE & 2Q ADVANCED GDP

The economic data that printed this morning was mostly a non-event. 2Q Advanced GDP printed a touch below expectations, and June PCE came in basically as anticipated. The GDP figures are likely to be revised, and the as expected PCE did not support or contradict forward inflation expectations. I think the next round of key economic data, beginning with the August Employment Report on 8/6, will be critical in setting the tone for rates for the remainder for the year. The US-Iran war wildcard will continue to weigh on markets and is likely to continue to impact economic data.

CHART 3:June PCE Recap

Source: Bloomberg, LLP | JUNE PCE RECAP

CHART 3A:2Q Advanced GDP Recap

Source: Bloomberg, LLP | 2Q ADVANCED GDP RECAP

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 7/30/2026

• Current 1-Month SOFR = 3.73087%(Prior Day’s Reset: 3.74903%)

• Markets are bracing for today’sFOMC rate decision

• Rate volatility ticks higher on Fed “uncertainty”; Overall, volatility remains relativelysubdued despite the myriad market forces at work

• The swap curve steepened materially yesterday during Fed Chair Kevin Warsh’s post-meeting press conference

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 Composite US Treasury Yield Volatility Index – Year-To-Date 2026

Source: Bloomberg, LLP | HISTORICAL US TREASURY 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.