Rates Move Lower on Weak Jobs Data

Flash Update: US RATE MARKETS – FRIDAY AUGUST 7, 2026

• UST yields and SOFR swap rates are moving lower this morning due primarily to a weaker-than-expected July jobs report

• The Employment Report revealed an unexpected loss of jobs in July, and revised the hiring data lower for the prior two months

• Odds for a September Fed rate hike have dipped to ~42.1%

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

• Overall, optimism is growing that a diplomatic solution can be reached to open the Strait of Hormuz and end the conflict

• Should negotiations stall or collapse and/or should military hostilities resume, rates are likely to move higher

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

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

• Next up for key economic data: July CPI data is due for release on Wednesday 8/12 at 8:30 AM; July PPI data is due for release on Thursday 8/13 at 8:30 AM

• Short-term SOFR swap rates are trading down ~5-7 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~5-7 bps currently, depending on tenor

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

Good morning – US Treasury yields and SOFR swap rates are moving lower this morning after the latest jobs report revealed a sharp slowdown in the US jobs market. Rates are falling this morning primary due to growing speculation the FOMC will not be prompted to raise interest rates in the near term. While the jobs data may ease the pressure on the Fed to raise rates at its September meeting, I believe that next week’s key inflation data will remain the deciding factor. The uncertain path forward for the Fed continues! That said, I still do not expect a material dip in rates until the conflict in the Middle East is resolved.

News out of the Middle East has been quiet this morning, keeping the market’s focus on the jobs report results. This morning, President Trump said negotiations between Iran and Oman over the Strait of Hormuz are “moving along,” though a deal has yet to be finalized.

The jobs data, overall was significantly weaker-than-expected and hiring was revised lower for the prior two months, suggesting the labor market may be under pressure after a relatively solid first half of the year. July payrolls undershot estimates with a loss of 23,000 jobs – expectations had called for a gain of ~80,000. The June and May payroll gains were revised downward. The unemployment rate declined to 4.1% from 4.2%, however, the labor force participation rate is now the lowest level since February 2021. That means the drop in the unemployment rate has more do to with the dwindling size of the US labor force, and that is a result of the crackdown on illegal aliens. In this case the dip in unemployment is not necessarily a positive sign – that is why markets mostly focused on the other data components this morning. Average hourly earnings were up 0.1% from the prior month and 3.2% from last year – expectations had called for gains of 0.3% and 3.5%, respectively. Hospitality and leisure jobs declined, while manufacturing and construction sectors expanded during July.

Overall, Middle East “developments”, AI and tech-sector equity valuations, and the FOMC’s policy path will continue to impact market sentiment. We will also see important inflation numbers next week – CPI on 8/12; PPI on 8/13 – you can bet market participants will be paying very close attention to the inflation data.

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.

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

Surprise July Employment Report Results Send Rates Lower

Source: Bloomberg, LLP | July Employment Report Recap

“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.

• 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, could be impacted by “tech” earnings for the foreseeable future.

• Tariffs are once again in focus, as President Trump implements a new round of tariffs and threatens more are coming. This is the 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, so the market impact is undetermined currently.

• The possibility exists we may be facing another government shutdown soon. Lawmakers have reached a temporary compromise to avert a shutdown for now, but the threat of another government shutdown looms.

SOFR Swap Rate Summary:

The 1Y SOFR swap rate is trading down ~5-6 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~6-7 bps. 5Y and 10Y SOFR swap rates are trading down ~5-7 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently down ~3-4 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 MOVE LOWER ON WEAK JOBS REPORT; FED RATE HIKE ODDS FOR SEPTEMBER DROP

SOFR swap rates are moving lower this morning due to the weaker-than-expected July Employment Report. The weak jobs data makes it more likely that the Fed will hold off on a September rate hike and remain in “wait-and-see” mode. Odds for a September rate hike were sitting in the mid-50’s for most of the week – they have plunged to ~ 42% this morning.

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 currently. Next week’s inflation data will also be key for setting near-term rate expectations.

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 – it is currently trading at ~4.034%(+82.4 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.048%(+82.8 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.219%(+69.9 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 8/7/2026

• Current 1-Month SOFR = 3.64655%(Prior Day’s Reset: 3.65112%)

• Volatility remains relatively subdued as trading volume remains light due to “summer markets”

• Cap premiums are improving today due to the drop in SOFR swap rates

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.

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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.