Rates Move Higher on Sticky PPI Data, Higher Oil Prices & ECB Rate Hike

Flash Update: US RATE MARKETS – THURSDAY SEPTEMBER 10, 2026

• US Treasury yields and SOFR swap rates are higher this morning as inflation fear continues to dominate the market

• This morning the European Central Bank (ECB) announced a 25 bp rate hike and raised their forward inflation outlook

• Saudi Arabia announced this morning that oil production reached the lowest level since 1990 and cautioned the slump in output would continue

• The Saudi announcement sent crude oil prices higher this morning; Brent crude oil topped $105 per barrel this morning

• Data released this morning showed US PPI remained sticky in August, keeping inflation fear center stage for US market participants

• The stronger-than-expected PPI, ECB rate hike and Saudi output warning all contributed to higher rates this morning

• The US-Iran conflict, and the price of crude oil, continue to be the primary focus for the rate markets

• Markets are fearful that the US-Iran conflict will persist indefinitely, leading to sustained higher inflation and reduced economic growth

• A drawn-out conflict is likely to keep upward pressure on oil prices and interest rates for the near term

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

• Odds for a 25 bp September Fed rate ticked up ~70% this morning due to the strong PPI report and higher oil prices

• Next up for key economic data: August CPI prints tomorrow, 9/11 @ 8:30 AM 

• Short-term SOFR swap rates are trading up ~7-9 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~7-8 bps currently, depending on tenor

• Long-end SOFR swap rates are trading up ~5-6 bps this morning, depending on tenor

Good morning – US Treasuryyields and SOFR swap rates are higher this morning due primarily to a stronger-than-forecasted August PPI report, higher crude oil prices and a 25 bp rate hike by the ECB. The ECB also raised their forward inflation outlook, portending more rate hikes down the road for the ECB. Currently, SOFR swap rates are up 6-8 basis points from last night’s closing levels.

Brent crude oil topped $105 this morning as Saudi Arabia reported to OPEC that its production plunged again last month as renewed hostilities between the US and Iran squeezed export routes. Iran and the US appear to be digging in for a protracted war, with little to no sign of a near-term ceasefire or return to normal Middle East energy flows even if hostilities remain at the current low intensity. Rates are likely to continue to track the direction of oil prices for the near term. The Fed meeting next week may disrupt that correlation, but I am not sure that a 25 bp rate hike will curtail the inflation threat if the conflict drags on.

Core PPI, excluding food and energy prices, increased 0.2% last month after a revised 0.3% advance in July. Headline PPI rose 0.4% from a month earlier and 5.4% from a year earlier. The PPI report comes a day ahead of the latest update to CPI, which is expected to show “core” inflation was relatively modest even as rising gasoline prices boosted the headline measure.

From my perspective, the August jobs data we saw last Friday, and today’s sticky PPI data “green light” a 25 bp rate hike at the next Fed meeting. However, it does not guarantee one! Whether the Fed will proceed with a rate hike or not could hinge on tomorrow’s release of the August CPI data. Expectations for tomorrow’s CPI data are as follows: Headline MoM, 0.4% (vs. 0.1% the prior month); Headline YoY, 3.4% (vs. 3.4% prior); Core MoM, 0.2% (vs. 0.2% prior); Core YoY, 2.4% (vs. 2.5% prior).

A static or lower-than-expected CPI print tomorrow would give the FOMC some flexibility – they would have the breathing room to hold off on a rate hike for another meeting, or they could decide to proceed with a rate hike, should they ultimately feel that the current level of inflation merits more restrictive policy. A higher-than-expected CPI result will likely lead to an increase in rate hike odds for next week, and higher short-term rates. We may see long-term rates dip on a rate hike and the curve flatten. Long end bond traders would likely welcome the proactive attempt by the Fed to curtail inflation. Currently, odds for a 25 bp rate hike next week are sitting at ~70%.

CHARTS OF THE DAY:

A: AUGUST PPI RECAP – STICKY PPI KEEPS INFLATION CENTER STAGE FOR MARKET PARTICPANTS

Source: Bloomberg, LLP | AUGUST PPI RECAP

B: HIGHER CRUDE OIL PRICES KEEP UPWARD PRESSURE ON RATES

Source: Bloomberg, LLP | BRENT CRUDE OIL PRICES SINCE JANUARY 2026

C: SHORT-END SWAP RATES MOVE HIGHER THIS WEEK AHEAD OF CPI, FOMC MEETING

Source: Bloomberg, LLP | 2-YEAR OIS SOFR SWAP RATE, PRIOR 7 TRADING SESSIONS

“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. l

• 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 decisions going forward.

• 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. US/China relations are always in focus. 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.

• The US Treasury Department’s recent bond market interventions set the stage for more to come. So far, the market is shrugging off the interventions and bond yields continue to tick higher.

FOMC Update:

• Key data that will be squarely on the Fed’s radar prior to the September meeting includes CPI (9/11) and Retail Sales (9/16). The FOMC will see plenty of key data prior to the rate decision due on 9/16. The upcoming inflation data will likely be an “all-hands-on-deck” moment for rate markets. Traders are back from “summer vacation” and ready to go! Today’s rate move underscores that point.

• Market implied odds for a 25 bp September Fed rate hike have ticked up to ~70%.

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading up ~7-8 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~7-9 bps. 5Y and 10Y SOFR swap rates are trading up ~7-8 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently up ~5-6 bps from Friday’s closing levels.

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)

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 | 9:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES MOVE HIGHER ON STICKY PPI, HIGHER OIL PRICES & ECB RATE HIKE; SEPTEMBER RATE HIKE ODDS RISE

SOFR swap rates are higher this morning due to sticky PPI, higher oil prices, and an ECB rate hike. Market participants are also looking ahead to tomorrow’s critical CPI print. Rates are continuing the trend of following the direction of oil prices. Higher oil prices continue to fan market fears of persistent, entrenched inflation. I do not expect this market theme to dimmish until the conflict in the Middle East is decisively resolved.

I expect the bias for rates to remain to the upside for the near term. The conflict in the Middle East remains a huge wildcard for markets – there is just too much uncertainty to predict a viable outcome. This much is clear to me – there is not likely to be any significant rate relief until oil prices drop significantly, and so long as the inflation threat looms, upward pressure will remain on swap rates. The trade war with Canada and surging US deficit will also continue to keep upward pressure on rates. At this juncture, I do not see a clear catalyst for materially lower rates on the immediate horizon. We will see what the Fed has to say about that next week!

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 ~4.380%(+117.0 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.418%(+119.8 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.524%(+100.4 bps)

• SOFR swap rates across the curve are sitting at 12-month highs

CHART 2:Short-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; YTD

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

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.

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 9/10/2026

• Current 1-Month SOFR = 3.74231% (Prior Day’s Reset: 3.76115%)

• Rate volatility has settled down a touch this week as quiet markets seek direction and wait for data

• Despite pockets of intraday volatility recently, interest rates are currently trading in a narrow range

• Cap premiums remain in a tight range as the market seeks direction

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.