Rates Lower on US Treasury Buyback Announcement

Flash Update: US RATE MARKETS – WEDNESDAY AUGUST 19, 2026

• UST yields and SOFR swap rates are moving lower this morning after a surprise buyback announcement from the US Treasury

• Longer term rates have been the most impacted by the US Treasury buyback announcement

• President Trump announced this morning that he will hold off on implementing onerous new tariffs against Canada

• The late reversal on the Canadian tariffs is also contributing to slightly lower rates this morning

• Traders continue to anxiously monitor the conflict in the Middle East and remain in a “wait-and-see” mode

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

• The renewed Middle East uncertainty is keeping pressure on oil prices, which is rekindling global inflation fears

• The July FOMC meeting minutes are due for release today at 2:00 PM

• The minutes are anticipated to show that “many” FOMC members (though not a majority) favored a 25 bp rate hike in July

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

• As of this morning, odds for a September Fed rate hike are sitting at ~32.6%

• Next up for key economic data: 2Q GDP, Aug. PCE, Aug. Personal Income and Aug. Personal Spending are all due for release on Wednesday 8/26 at 8:30 AM

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

• Medium-term SOFR swap rates are down ~3-5 bps currently, depending on tenor

• Long-end SOFR swap rates are trading down ~6-7 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are moving lower after a surprise “buyback” announcement from the US Treasury. This morning Treasury Secretary Bessent announced the US Treasury Department is ramping up buybacks of long-dated government debt after yields on those securities hit the highest levels in years. The Treasury Department is increasing the size of liquidity support buyback operations for securities dated from the 10-year to the 30-year sector by at least double. In short, medium, and long-term bonds rallied after the Treasury announced it would increase US bond buybacks to stop the surge in long-end yields. The surprise buyback announcement is likely to hold long term rates in check for the time being. We may see some increased volatility on the long end as the market sorts through the announcement.

This morning, President Trump announced that he is holding off on a new round of tariffs on Canadian imports. The news was received positively by the market and is helping to contribute to slightly lower rates this morning. Traders continue to anxiously monitor developments in the Middle East, but with oil prices holding relatively steady, traders remain in a wait-and-see mode.

We will see the release of the July FOMC meeting minutes this afternoon at 2:00 PM. The minutes are anticipated to reveal that “many” market participants favored a 25 bp rate hike at the July meeting, but not enough to win a majority. Odds for a 25 bp rate hike dipped after the weak July Employment Report results – it will be interesting to see if “hawkish” meeting minutes will alter the market’s expectations for the September Fed meeting. I would also say that given the reduced level of Fed forward guidance, I expect the July meeting minutes to be carefully analyzed by market participants. In short, I do not expect an outsized reaction to the minutes. There is still too much uncertainty hanging over the market for traders to commit to a new trading range or a material move in rates based on stale information.

Currently, there is no deal in sight to reopen the Strait of Hormuz, and neither side is showing any real willingness to compromise. The fragile ceasefire that was in place to compel negotiations ended Monday, further complicating the situation. Given the quiet summer markets and lack of key economic data releases scheduled for this week, I expect the market’s focus to remain squarely on the conflict in the Middle East. Overall, I still do not expect a material dip in rates until the conflict in the Middle East is resolved.

NOTE: I would also point out that given the lack of Fed forward guidance, I suspect that economic data will be even more critical for bond and rate traders going forward. Check our website for a calendar of upcoming economic data releases - astdefeasance.com. This week is quiet for economic data, and the market is squarely focused on developments in the Middle East. The next “big” data event is on 8/26, when we will see PCE, 2Q GDP, Personal Income and Personal Spending all released at 8:30 AM.

Market uncertainty regarding the path forward for interest rates remains at elevated levels – I expect that “uncertainty” to remain elevated for the foreseeable future.

CHART OF THE DAY: Odds for A September Rate Hike Dip; Will the July Fed Meeting Minutes Alter the Market’s View?

Source: Bloomberg, LLP | SEPTEMBER FOMC MEETING – MARKET IMPLIED RATE HIKE PROBABILITY

“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.

• Lack of forward guidance from the Fed is forcing traders to pay more attention to economic data – this may fundamentally change the way markets position for and react to Fed rate announcements. Stay tuned!

• 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, may be impacted by tech-sector results for the foreseeable future.

• Tariffs remain in focus, although the crisis in the Middle East is still garnering most of the market’s attention. On some level, more tariffs are 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 - the market impact is undetermined currently.

SOFR Swap Rate Summary:

The 1Y SOFR swap rate is trading down ~1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading down ~1-2 bps. 5Y and 10Y SOFR swap rates are trading down ~3-5 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently down ~6-7 bps from yesterday’s closing levels. The yield curve flattened slightly this morning on the Treasury buyback announcement.  

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 LOWER ON TREASURY BUYBACK ANNOUNCMENT; TRADERS MONITOR DEVELOPMENTS IN THE MIDDLE EAST

SOFR swap rates are moving lower this morning, particularly on the long end of the swap curve. Overall, we are still seeing the “narrow range” summer markets we have been experiencing all week. Lack of key economic data and a stalemate in the Middle East are keeping swap rates range bound. The Treasury buyback announcement mostly impacted the inflation sensitive long end of the curve, and it is the main catalyst for lower rates today.

This morning Brent crude oil is trading at ~$91.5 per barrel, and WTI crude is holding at ~$85.4 a barrel. Higher “war induced” oil prices are fanning global inflation fears and keeping the rate bias to the upside. 2Y swap rates were trading at 3.21% on the eve of the US-Iran war – they are currently trading at 4.024%, up ~81.4 bps.

Overall, SOFR swap rates continue to trade in a relatively narrow range as market participants seek clear direction. An end to the US-Iran conflict would help to significantly improve market sentiment. The 2-year SOFR swap rate closed at 4.050% on Monday 8/7 – right now it is trading at ~4.024% (down ~2.6 bps). Longer term swap rates have risen more than short term swap rates recently, due to the pervasive inflation fear currently gripping the market. The 10-year SOFR swap rate closed on 8/7 at 4.237% and is currently trading at ~4.245% (up ~1 bp).

Market participants will continue to anxiously monitor the myriad 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. I believe that SOFR swap rates will continue to be biased to the upside until the conflict in the Middle East is resolved.

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 2/27/2026 – it is currently trading at ~4.024%(+81.4 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.063%(+84.3 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.245%(+72.5 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)

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 8/19/2026

• Current 1-Month SOFR = 3.65245%(Prior Day’s Reset: 3.64730%)

• Volatility has ticked slightly higher recentlybut remains relatively subdued overall as trading volume remains light due to “summer markets”

• Cap premiums are holding relatively steady as SOFR swap rates are currently trading in a narrow range

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 YIELD VOLATILITY, “MOVE” INDEX – 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.