Rates Tick Higher on Fresh Middle East Hostilities

Flash Update: US RATE MARKETS – WEDNESDAY JULY 8, 2026

• UST yields and SOFR swap rates are edging higher as the Middle East ceasefire is in jeopardy of collapsing

• Renewed military strikes by Iran are adding to market apprehension and uncertainty regarding the outlook for peace in the Middle East

• Thus far today, rate markets have had a mostly muted reaction to President Trump’s announcement that the US-Iran ceasefire “is over”

• Oil prices, however, are moving higher this morning in reaction to the fresh hostilities in the Middle East

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

• Next up for data: The June FOMC meeting minutes will be released today, 7/8 at 2:00 PM

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

• Medium-term SOFR swap rates are up ~3-4 bps currently, depending on tenor

• Long-end SOFR swap rates are trading up ~1-2 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are ticking higher this morning as the US-Iran ceasefire is in jeopardy because of fresh military strikes by Iran in the region. President Trump has said that the ceasefire “is over” but so far, traders are looking past the rhetoric and remaining patient. The market reaction to the headlines has been mostly muted. I thought rates would be significantly higher this morning – they are not. That tells me traders are cutting through the rhetoric and knee-jerk reactions and holding out hope the two sides will continue to move toward a permanent peace agreement.

I am not sure how long the market’s patience will last – at some point the market will abandon unrealistic hope and capitulate to reality. The reality is this conflict may last far longer than anyone anticipated. As we know, the market landscape has changed dramatically from before the war began. The biggest issue right now remains the uncertain timetable for a resolution to the conflict – the longer the war in the Middle East drags on, the more likely we will face more sustained inflationary pressure. Stay tuned – I expect additional news and headlines throughout the day.

The June Fed meeting minutes will be released today at 2:00 PM. I do not expect the release of the meeting minutes to dramatically move the market. Given Chair Warsh’s desire to curtail Fed “communication”, I do not know precisely what to expect from the release of the minutes this afternoon. Markets will be combing through the minutes carefully, but I am not sure how much new information they will reveal. However, I do expect the minutes to show that the FOMC is very worried about inflation and the uncertainty created by the war. In my opinion, continued “war” uncertainty is likely to keep upward pressure on rates for the near term, particularly on the Fed-sensitive short-end of the curve.

“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 up ~2-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~3-4 bps. 5Y and 10Y SOFR swap rates are trading up ~2-4 bps this morning. The very back-end of the swap curve is currently trading 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: 10:00 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 | 10:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK HIGHER AS US-IRAN CEASEFIRE IN JEOPARDY

SOFR swap rates are ticking a touch higher this morning, as market participants anxiously monitor fresh hostilities in the Middle East. Market participants are losing confidence that a peace plan can be reached between the two sides in the near term. Oil prices shot higher overnight, renewing fears that sustained higher oil prices will lead to entrenched inflation. The market is getting more practiced about reacting to rumors and headlines – that is a positive on some levels, but it also underscores that the market simply does not know what to believe! The ever-shifting rhetoric, “crying wolf” and unmet deadlines are creating a new level of market uncertainty regarding the outlook for the conflict in the Middle East. There does not seem to be a quick, or easy way out of the conflict for the US. I said it yesterday and feel it even more strongly this morning; Should tension in the Middle East flare up, expect rates to continue to creep higher. If the ceasefire collapses and/or oil prices march higher, SOFR swap rates are likely to follow close behind.

Rates have been quietly creeping higher all week. The 2-year SOFR swap rate began the week at 3.978% and is now trading at ~4.07% (+9.2 bps). We are once again approaching the 12-month highs for SOFR swap rates.

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 ~4.070%(+86.0 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.030%(+81.0 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.154%(+63.4 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: US-IRAN WAR UNCERTAINTY COMPLICATES THE PATH FORWARD FOR THE FOMC

The FOMC will release the June meeting minutes this afternoon at 2:00 PM. I expect the minutes, Kevin Warsh’s first as Fed Chair, will show stronger support for rate hikes. In the most recent dot-plot (note: Warsh did not submit a dot), half of the dots now show at least one rate hike this year. I think the minutes will support the view that policymakers will be likely to tighten if inflation remains above 2%. As we know, the inflationary pressure created by the war is already making the making Fed’s job more challenging. The Fed will need to determine if the inflation we see is transient or more entrenched. I still believe that the longer the conflict drags on, the more likely we are to see a rate hike this year…or two. Market participants appear to agree…for now!

CHART 3:Fed Policy Projections Volatile as Market Uncertainty Reigns

Source: Bloomberg, LLP | FED RATE CUT EXPECTATIONS THROUGH JUNE 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 7/8/2026

• Current 1-Month SOFR = 3.66876% (Prior Day’s Reset: 3.66688%)

• Cap premiums have stabilized; SOFR swap rates are trading in a tight range as the market seeks direction

• Rate volatility remains relatively subdued as the market weighs a host of market variables

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.