Rates Drift Higher on Mixed Economic Data

Flash Update: US RATE MARKETS – WEDNESDAY AUGUST 26, 2026

• US Treasury yields and SOFR swap rates are edging higher this morning on mostly “as expected” economic data

• Inflation data released this morning was slightly above expectations, leading to the uptick in rates, particularly on the Fed-sensitive short-end

• News reports that Iran and Oman have discussed an “interim framework” for reopening the Strait of Hormuz led to lower crude oil prices this morning

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

• Rate markets anticipate further bond market intervention from the US Treasury Department, aimed at lowering term rates

• The US and Canada appear poised for a trade war – currently, markets are in “observe and report” mode surrounding the US-Canada trade standoff

• Nvidia reports 2Q earnings after the bell today – markets will be paying close attention to the results – investors want to see returns on massive capital spending

• FOMC Chairman Warsh is set to speak on Friday, 8/28 at 10:00 AM at the Fed’s annual symposium in Jackson Hole, Wyoming

• Given the recent tight-lipped Fed, traders will be paying very close attention to what Chair Warsh has to say about inflation

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

• Odds for a 25 bp September Fed rate hike ticked up to ~40.1%

• Next up for key economic data: The August Employment Reports prints on Friday, 9/4 at 8:30 AM

• Short-term SOFR swap rates are trading up ~3-4 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~2-4 bps currently, depending on tenor

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

Good morning – US Treasuryyields and SOFR swap rates are drifting higher this morning after highly anticipated economic data came in mostly “as expected”. The GDP and PCE inflation data posted a bit higher-than-expected, leading to the slightly higher rates we are seeing this morning. Overall, the data did little to impact markets squarely focused on the Middle East. If anything, this morning’s data likely buys the Fed a bit more time to hold off on a rate hike, though the uptick in rates this morning tells me traders still believe the Fed may need to raise rates this year to quell rising inflation.

In the latest Middle East new, oil prices dipped to ~$86.26 a barrel this morning, on reports that Iran and Oman are discussing an “interim framework” for reopening the Strait of Hormuz. Rates dipped slightly on the reports, but rate markets largely shrugged off the news to prepare for today’s economic data releases and later in the day, the release of Nvidia’s second quarter earnings report. Market participants continue to track the tense trade situation between the US and Cananda and are preparing for more bond market intervention from the US Treasury Department. At this juncture, it is unclear what the Treasury Department has planned next, but the general market sentiment is that more intervention is coming. Thus far, rate markets have shrugged off the recently announced economic sanctions against Iran and its allies, although those efforts are just beginning. Fed Chair Warsh speaks Friday at 10:00 AM at the Fed’s annual Jackson Hole symposium.

CHART OF THE DAY: THE ELEPHANT IN THE ROOM: US BUDGET DEFICIT MAY KEEP TREASURY YIELDS HIGHER-FOR-LONGER

Source: Bloomberg, LLP | US PRIMARY BUDGET DEFICIT VS. GLOBAL PEERS

Source: Bloomberg, LLP | US DEBT & DEBT TO GDP SINCE 2002

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.Developments in the US/Iran “war” will continue to captivate the market’s attention.

• 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!

• Fed Chair Warsh speaks on Friday at 10:00 AM at the Fed’s annual Jackson Hole symposium. I expect Chair Warsh to attempt to rebuild his credibility and discuss how the Fed plans to tackle rising inflation. Markets are looking for a “clear message” on inflation from the Fed.

SOFR Swap Market - Quick Summary:

The 1Y SOFR swap rate is trading up ~3-4 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 ~2-3 bp this morning. The very back-end of the swap curve (20Y and 30Y) is currently up ~1-2 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 DRIFT HIGHER ON “AS EXPECTED” ECONOMIC DATA

SOFR swap rates opened a few basis points lower this morning, mainly due to a slight retreat in crude oil prices. However, after the data printed, rates retraced and are now higher on the day. 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. Perhaps Chair Warsh will be able to shake-up the market on Friday when he speaks in Jackson Hole. Despite sporadic pockets of “whipsaw” rate volatility last week, vol is holding steady this week. Markets continue to swirl around in a “wait-and-see” mode on several potential market catalysts.

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 ~4.070%(+86.0 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.105%(+88.5 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.281%(+76.1 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 & 3A: ECONOMIC DATA RECAP: PCE, 2Q GDP, PEERSONAL INCOME & PERSONAL SPENDING

US 2Q GDP was unrevised at +1.5% in the second reading, but the core GDP Price Index was revised higher to 6.4% from 6.2%. US consumer spending stalled in July, and PCE, the Fed’s preferred inflation gauge (for now), advanced +0.2%, in line with expectations. Inflation-adjusted consumer spending was flat last month following strong increases in May and June. Core PCE, which excludes food and energy items, also advanced 0.2% from a month earlier, and 3.3% from a year earlier. The mostly “ as expected” economic data likely gives the Federal Reserve more room to hold interest rates steady. Rates did tick higher after the data printed, but not materially.

CHART 3:JULY PCE RECAP– Sticky Core Inflation Keeps September Rate Hike in Play  

Source: BARRON’S | JULY PCE RECAP

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.

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, however, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. It is often challenging to place a swap away from the lender or incumbent relationship bank. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. With the uptick in swap rates recently, we are also seeing an increase in swap termination requests. Please let us know if you would like to learn more about interest rate swaps, or swap terminations. RCA offers a full range of Derivative Advisory services.

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. Market price discovery is a key component to any cap transaction – new caps, extensions, or 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 8/26/2026

• Current 1-Month SOFR = 3.68814%(Prior Day’s Reset: 3.68318%)

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

• Given Fed Chair Warsh’s Jackson Hole speech on Friday, 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.