Rates Rise on Higher Oil Prices

Flash Update: US RATE MARKETS – THURSDAY AUGUST 20, 2026

• UST yields and SOFR swap rates are moving higher this morning on the back of rising oil prices

• President Trump announced an “economic D-Day” against Iran and its allies, ratcheting up tensions in the Middle East and market uncertainty

• In short, rising oil prices are putting inflation risks back on market participants’ radar, and pushing rates higher 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 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 ~33.9%

• 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 up ~2-4 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~5-6 bps currently, depending on tenor

• Long-end SOFR swap rates are trading up ~4-5 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are rising this morning, mainly due to higher oil prices. The situation is the Middle East appears to be moving farther away from a peaceful resolution, not closer to one. Yesterday, the US Treasury’s surprise “buyback” announcement sent long-end yields tumbling. However, last night, President Trump announced plans to subject Iran to an “economic D-Day,” underscoring his rising frustration with Iran’s refusal to capitulate despite military strikes and an American blockade targeting its oil exports. In addition, President Trump threatened to target Iran’s trading partners, warning that any country that provides a “lifeline” to Iran will face “TREMENDOUS Economic Consequences.” As a result, oil prices ticked higher, and rates are higher this morning, erasing most of the dip in rates we witnessed yesterday. From my perspective, what we are seeing this morning underscores the prevailing market view – we are far from out of the woods with Iran and the threat of sustained higher inflation remains a very real market fear. Market uncertainty remains at extremely elevated levels.

A note on the Treasury buybacks announced yesterday - the global bond rally we witnessed yesterday may prove short lived. This morning, I have read many analysts warnings that Bessent’s plan to alleviate higher bond yields risks being a “short-term” fix, due to traders’ entrenched concerns about outsized fiscal deficits, tariffs, oil-induced inflation, and broader supply pressure from the tech-sector (AI) borrowing binge. Mr. Bessent may find there is no easy path to lower rates in this market environment.

The minutes of the July FOMC meeting, released yesterday afternoon, showed “several” FOMC participants favored raising rates. That is about five or six votes shy of the level needed for a majority. Market participants had anticipated that the minutes would show that “many” of the voting members favored a rate hike. The minutes seemed to reveal that the FOMC is less hawkish than the market thought. That makes it more likely that the Fed will remain “on hold” in September. That said, I believe the economic data we see at the end of this month and the beginning of next month will be key in determining what the Fed does in September, as will developments in the Middle East.

I do think that rates will continue to track the direction of oil prices for the near term. 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: Secretary Bessent May Find That There is No Easy Path to Lower Rates in This Market Environment

Source: Bloomberg, LLP | 30Y UST BOND YIELD – YTD 2026

“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 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 ~5-6 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently up ~4-5 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: 9:45 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 | 9:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK HIGHER AS OIL PRICES RISE; “MIDDLE EAST” UNCERTAINTY MOUNTS

SOFR swap rates are ticking higher this morning due to the uptick in oil prices. I expect rates to continue to track the direction of oil prices for the near term. Overall, we are still seeing the “narrow range” summer markets we have been experiencing the past two weeks. Lack of key economic data and tremendous uncertainty surrounding the Middle East are keeping swap rates range bound.

The rate relief that the Treasury buyback announcement produced yesterday appears to be short-lived. However, that could change. It will take some time to see the impact of the buyback announcement. Right now, inflation fears prompted by the situation in the Middle East remain the primary market catalyst.

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 ~4.056% (basically, unchanged). Longer term swap rates have been more volatile 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 ~4.303% (up ~6.6 bps).

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 ~4.056%(+84.6 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.123%(+90.3 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.303%(+78.3 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 8/20/2026

• Current 1-Month SOFR = 3.65191%(Prior Day’s Reset: 3.65245%)

• 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.