Rates Ease on Tame CPI

DAILY BRIEF: US RATE MARKETS – WEDNESDAY, AUGUST 12, 2026

• Rate Movements:

  • UST yields and SOFR swap rates are lower this morning after July CPI matched expectations across the board, easing concerns of a hawkish Fed surprise and prompting money markets to trim bets on a September rate hike

  • Short-term SOFR swap rates are down ~3-4 bps

  • Medium-term SOFR swap rates are down ~3-4 bps

  • Long-end SOFR swap rates are down ~2 bps

• Today's Catalysts:

  • President Trump escalated rhetoric overnight, claiming the US has "total control" of the Strait of Hormuz and warning Iran would "get blown away" if it interferes, a hardening from earlier in the week

  • Despite that, backchannel reports continue: Pakistan's defense minister said the US and Iran are "close to some sort of arrangement," while Qatar described Iran-Oman talks on partial reopening as at a "critical juncture"

  • Shipping data undercuts the "open now" claim: only 8 vessels transited Hormuz Monday vs. a pre-war average of ~120

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

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

• Fed Watch + Upcoming Data:

  • Next FOMC meeting: Wednesday, September 16th at 2:00 PM with odds for a 25 bp rate hike dropping to ~39.9%

  • Next up: July PPI is due for release on Thursday, 8/13 at 8:30 AM

  • For a full economic calendar: Please visit astdefeasance.com

Good Morning — US Treasury yields and SOFR swap rates are lower this morning after July CPI matched expectations across the board, with headline inflation at 3.4% year-over-year and core at 2.5%. Oil remains the wildcard heading into the rest of the week as President Trump claimed the US has "total control" over the Strait of Hormuz overnight, even as talks with Iran stay deadlocked, so today's relief could prove short-lived if the geopolitical picture shifts again. For the week, short-end SOFR swap rates are down ~2 bps overall, nudging 1Y/2Y cap premiums lower.

Please note: Market uncertainty regarding the path forward for interest rates remains elevated and likely to persist for the foreseeable future.

MARKET MOVERS:

Tame CPI Print Eases Fed-Hike Concerns as Stock Futures, Bonds Rally
July CPI matched expectations across the board: headline consumer prices rose 0.1% on the month and 3.4% year-over-year, while core CPI (ex-food and energy) rose 0.2% month-over-month and 2.5% annually — the slowest core pace since March 2021. The in-line reading, following Friday's weak jobs report, brought relief to markets worried about a hawkish surprise: both stock index futures and Treasuries rallied, with the 2Y yield falling roughly 4 bps to ~4.17% as money markets trimmed bets on a September Fed hike.
The relief is notable given the backdrop. Three Fed officials dissented in favor of a hike at the July FOMC meeting, and long-dated Treasury yields had surged to their highest levels in nearly two decades after the Fed opted to hold rates that same month. Fed Chair Kevin Warsh has also moved to make the central bank less forthcoming about its policy intentions ahead of decisions, leaving incoming data to carry more weight than usual in shaping rate expectations.

Source: Bloomberg, LLP | UST 2Y — Intraday

President Trump Claims "Total Control" of Hormuz as Diplomatic Signals Stay Mixed
President Trump told reporters overnight that the US has "total control" of the Strait of Hormuz, adding that Iran would face consequences if it interfered with shipping through the waterway. The comments mark a hardening in rhetoric from earlier in the week. At the same time, diplomatic channels appear to be sending a different signal: Pakistan's defense minister said the US and Iran remain "close to some sort of arrangement," and Qatar's foreign ministry described related talks between Iran and Oman on partial reopening as having reached a "critical juncture." However, Iran's side has added its own conditions. The newly appointed secretary of its Supreme National Security Council said any Oman-brokered arrangement would remain separate from a full reopening, and that Tehran is also seeking a complete end to the war and the release of frozen Iranian assets.
Shipping data complicates the picture further. Only 8 vessels transited the strait Monday, compared with a pre-war average of roughly 120, suggesting traffic has not meaningfully resumed regardless of the public statements.

Source: Bloomberg, LLP | BRENT CRUDE OIL PRICES — Last 3D

IN OTHER NEWS:

• CoreWeave shares surged on strong AI demand guidance, a bright-spot data point for the AI/tech theme

• A new flashpoint emerged in the Red Sea: a Saudi-owned cargo vessel was struck in the Bab al-Mandeb Strait, killing 3 crew members

• Reported policy divide between Bessent and Japan's Takaichi is said to be complicating Japan's yen-support effort

SOFR SWAP RATE SUMMARY:
SOFR swap rates are trading down across the curve this morning: 1Y ~2.5 bps, 2Y/3Y ~4 bps, 5Y/10Y ~3-4 bps, and 20Y/30Y ~2 bps at the back end.

US Rates Snapshot: 8:55 AM ET

Source: Bloomberg, LLP | 8:55 AM NY Rates Snapshot | Columns: UST Yields & Chg (bps) — SOFR OIS Swap Spreads & Chg (bps) — SOFR OIS Swap Rates & Chg (bps)

US-Iran War Impact: Key SOFR Swap Rate Movements Since The Conflict Began

• 2Y SOFR swap rate: 3.21% on Fri 2/27 → ~4.0346% currently (+82.5 bps)

• 5Y SOFR swap rate: 3.22% on Fri 2/27 → ~4.0700% currently (+85.0 bps)

• 10Y SOFR swap rate: 3.52% on Fri 2/27 → ~4.2495% currently (+73.0 bps)

Short-End SOFR Swap Rates: Year-To-Date 2026

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

Long-End SOFR Swap Rates: Year-To-Date 2026

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

US Treasuries: Yield Overview: Year-To-Date 2026

Source: StreetStats | US Treasury Yields; YTD 2026 (30Y — top, 10Y — middle, 2Y — bottom)

RCA PRODUCT & PRICING UPDATE:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

• Big Picture: Interest rate uncertainty remains elevated across the market. Consequently, borrowers should stay nimble in this market environment.

• Caps: Cap purchasers can onboard at no cost and should be positioned to act quickly when the market moves in their favor. Clients weighing extensions should monitor pricing closely and check current levels before committing, the same way they purchased an original cap.

• Swaps: Growing interest in interest rate swaps as a hedge alternative — No upfront premium, but counterparty selection is more involved than with a cap. We're also seeing rising swap termination requests as refinancing activity picks up.

• Floors: Residual demand persists — Borrowers with embedded loan floors are considering stand-alone floors to offset them.

Cap Pricing & Volatility Update: 8/12/2026

• Current 1-Month Term SOFR = 3.64212% (+0.173 bps)

• Volatility has eased modestly following today's in-line CPI print, though Iran/Hormuz uncertainty continues to keep levels elevated relative to pre-conflict norms

• Cap premiums are lower this morning, as today's tame inflation data took some pressure off near-term Fed-hike expectations

Cap Premiums: Trailing 2-Weeks

Source: AST Defeasance | Rate Cap — $25MM, 3.50%, 3Y
Cap Volatility: Trailing 2 Weeks

Source: AST Defeasance | Implied Volatility — 3.50%, 3Y

Reminder: Rate markets can be volatile — Market dynamics and pricing can change quickly in this market environment. We recommend you call us for accurate, up-to-the-minute cap indications. Reach out to discuss an upcoming rate cap or extension, 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.

Hedge With An Edge - The RCA Edge!

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.