Rates Dip on Lower Crude Oil Prices

Flash Update: US RATE MARKETS – TUESDAY AUGUST 25, 2026

• US Treasury yields and SOFR swap rates are a few ticks lower this morning due to a slight reduction in crude oil prices

• Brent crude oil fell to the lowest level in a week (~$89.3 a barrel) on a report by the New York Times indicating the US is preparing to send diplomats back to embassies in the Middle East

• If this story is accurate, it could signal the US does not want a renewal of a full-scale military conflict with Iran

• Yesterday, the US announced a new sanction-based economic plan to isolate Iran and its allies from the global economic community

• The potential punitive measures against Iran’s supporters caught the market’s attention and sets the stage for further geopolitical tensions globally

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

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

• Rate markets continue to anticipate further bond market intervention from the US Treasury Department

• The US and Canada appear poised for another trade war – currently, markets are in “observe and report” mode surrounding the new tariffs

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

• Odds for a 25 bp September Fed rate hike are currently sitting at ~37.9%

• Next up for key economic data: Revised 2Q GDP, July PCE, Personal Income and Personal Spending are all due for release tomorrow, 8/26 at 8:30 AM

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

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

• Long-end SOFR swap rates are trading down ~3-4 bps this morning, depending on tenor

Good morning – US Treasuryyields and SOFR swap rates are a few ticks lower this morning due to a slight retreat in crude oil prices. Oil prices dipped to ~$89.3 a barrel this morning after a New York Times report stated the US is sending diplomats back to embassies in the Middle East. Markets took that as a signal that the US does not want a renewal in hostilities. If the report is accurate, new US diplomatic efforts keep the door cracked open for progress towards a resolution and the reopening of the Strait of Hormuz. Market participants continue to monitor the tense trade situation between the US and Cananda and are preparing for more bond market intervention from the US Treasury. At this juncture, it is unclear what the Treasury Department has planned next, but the general market sentiment is that more intervention is coming, intervention aimed at lowering term rates. Traders are also preparing for a key round of economic data releases that begins tomorrow.

The next “big” economic data event is tomorrow 8/26, when we will see PCE, 2Q GDP, Personal Income and Personal Spending all released at 8:30 AM. Expectations for tomorrow’s economic data releases are as follows: Headline PCE MoM, 0.1% (vs. -0.1% the prior month); Headline PCE YoY, 3.6% (vs. 3.7% prior); Core PCE MoM, 0.2% (vs. 0.1% prior); Core PCE YoY, 3.3% (vs. 3.3% prior); Personal Income, 0.2% (vs. 0.2% prior); Personal Spending, 0.1% (vs. 0.3% prior); 2Q GDP - Second Revision, 1.5% (vs. 1.5% prior); Core 2Q GDP Price Index, 3.4% (vs. 3.4% prior).

To be succinct, barring any major surprises with GDP tomorrow, markets are likely to focus on the PCE data. Even an “at expectations” core PCE reading of 3.3% is still significantly above the Fed’s 2.00% target. If PCE misses to the upside I expect rates to tick higher, especially on the Fed-sensitive short-end of the curve. An “at expectations” or lower-than-expected PCE print could decrease Fed rate hike odds for the remainder of the year, but I do not see rates moving materially lower until the conflict in the Middle East is resolved.

CHART OF THE DAY: Brent Crude Oil Ticks Below $90 Per Barrel; Rates Tick Lower in Response

Source: Bloomberg, LLP | PRICE OF BRENT CRUDE OIL, 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, particularly the developing situation between the US and Canada. On many levels, 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.

• The US Treasury Department’s bond market intervention this week sets the stage for more to come. Stay tuned!

SOFR Swap Market - Quick Summary:

The 1Y SOFR swap rate is trading down ~2-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~3-4 bps. 5Y and 10Y SOFR swap rates are trading down ~3-4 bp this morning. The very back-end of the swap curve (20Y and 30Y) is currently down ~3-4 bps from yesterday’s closing levels.

CHART 1:US RATES SNAPSHOT: 9:15 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)

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:15 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK LOWER AS CRUDE OIL DIPS BELOW $90 A BARREL

SOFR swap rates opened a few basis points lower this morning, mainly due to a slight retreat in crude oil prices. Barring any new developments out of the Middle East, I still expect rates to generally track the direction of crude oil prices for the near term – at least until the FOMC meeting. Despite sporadic pockets of “whipsaw” rate volatility last week, vol remains relatively subdued this week. Markets are swirling around in a “wait-and-see” mode on several potential market catalysts. Quiet summer markets are also helping to keep rates steady.

We could see an uptick in volatility the remainder of the week. Tomorrow begins the next round of key economic data – just in time for the upcoming Fed meeting! Additionally, US/Canada “trade drama”, the ongoing Gulf conflict, US Treasury Department bond market intervention and new US sanctions against Iran and its allies will continue to captivate the market’s attention.

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 ~4.059%(+84.9 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.097%(+87.7 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.275%(+75.5 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 8/25/2026

• Current 1-Month SOFR = 3.68318%(Prior Day’s Reset: 3.66727%)

• Despite pockets of elevated volatility last week, rate volatility remains relatively subdued overall

• Given the possibility of additional Treasury Department intervention and the full plate of key economic data on tap, we may see an uptick in volatility this week

• 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.