Markets Brace for Critical FOMC Rate Decision

Flash Update: US RATE MARKETS – TUESDAY SEPTEMBER 15, 2026

• Short-end US Treasury yields, and SOFR swap rates are mostly steady this morning ahead of tomorrow’s FOMC rate decision

• Long-end US Treasury yields, and SOFR swap rates are ticking higher this morning as inflation fears continue to dominate the rate markets

• Brent crude oil is hovering around $103 a barrel this morning on elevated Middle East tensions and an uncertain, cloudy outlook for a resolution 

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

• Focus will shift to the Fed’s highly anticipated September rate decision, due tomorrow at 2:00 PM

• Odds for a 25 bp September Fed rate hike have surged to ~92.5% this morning due mainly to the recent uptick in crude oil prices

• Traders 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 tomorrow, September 16th at 2:00 PM

• Next up for key economic data: August Retail Sales prints tomorrow, 9/16 @ 8:30 AM 

• Short-term SOFR swap rates are trading flat to down ~1 bps this morning, depending on tenor

• Medium-term SOFR swap rates are flat to down ~1 bp currently, depending on tenor

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

Good morning – Short-endUS Treasury yields, and SOFR swap rates are holding mostly steady this morning as markets brace for tomorrow’s critical Fed rate decision. Markets also continue to closely monitor the direction of crude oil prices, which are hovering around $103 per barrel this morning, down a touch since yesterday. Rates surged last week due to sticky US inflation data and a surge in crude oil prices. The uptick in rates last week and the resultant uptick in volatility pushed cap premiums materially higher. Bond traders are sending a clear message to the Fed – it is time to deal with inflation; it is time to hike.

Rates are likely to continue to track the direction of oil prices for the near term. The Fed meeting this week could disrupt that correlation, but I am not sure that a 25 bp rate hike will meaningfully curtail the inflation threat if the conflict in the Middle East drags on indefinitely. The main worry for rate market participants is that there are not enough “dip” buyers to quell the jump in rates, perhaps because oil prices keep rising due to a sustained energy crisis, or perhaps if the Fed disappoints the market tomorrow. In that scenario, the cost of borrowing in the US could enter a trading range not seen in many years.

Is there room for rates to move higher? Absolutely! A “break” above 5% on the 10-year US Treasury yield could start whispers that the next stop is 6.00%. I expect a turbulent market tomorrow, and perhaps going forward, especially if the Fed does not hike 25 bps tomorrow.

Based on Chair Warsh’s Jackson Hole comments, recent hawkish Fed-speak and near unanimous market expectations, I do anticipate a 25 bp rate hike tomorrow. I also believe we will see odds for a second rate hike this year rise after tomorrow’s announcement. There is still no clear end in sight for the crisis in the Middle East, which is likely to keep upward pressure on oil prices for (at least) the near term. I still do not see the possibility for materially lower rates until the crisis in the Middle East is resolved, and oil prices drop significantly.

CHARTS OF THE DAY:

A: 10-Year UST Yield Hits Highest Level Since 2007

Source: Bloomberg, LLP | 10-YEAR UST YIELD SINCE 2007

B: US Deficit Keeps Upward Pressure on US Treasury Yields

Source: Bloomberg, LLP | US DEFICIT SINCE 1975

C: Market Implied Odds for FOMC Monetary Policy Adjustments

Source: AST DEFEASANCE/RCA WEBSITE | MARKET IMPLIED FED POLICY ADJUSTMENT PROBABILITIES

“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:

• Market implied odds for a 25 bp September Fed rate hike have ticked up to ~92.5%.

• The FOMC rate announcement is due tomorrow, 9/16 at 2:00 PM. The announcement will be followed by Chair Warsh’s press conference at 2:30 PM.

• The FOMC will also release a new dot-plot and revised economic projections. Chair Warsh is not expected to submit a “dot”.

SOFR Swap Market - Quick Summary:

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

CHART 1:US RATES SNAPSHOT: 9:00 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 | 9:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES MOSTLY STEADY AS MARKET BRACES FOR FOMC RATE DECISION

SOFR swap rates are holding mostly steady this morning as the market prepares for tomorrow’s critical FOMC rate decision. Markets anticipate that the Fed will raise rates 25 bps tomorrow – odds are sitting at ~92.5% for a 25 bp September rate hike. From my perspective, the bond market has been sending a clear signal to the Fed – they must raise rates to curtail inflation and reduce term premiums, preferably before they start to impact economic growth.

If the Fed’s moves ahead with a rate hike tomorrow, we may see medium- and long-term rates drop and the curve flatten. I do believe that rate traders will view a rate hike tomorrow favorably, which could lead to reduced inflation fears, lower term rates, and a flatter yield curve. The flip side is that the market will simply breathe a sigh of relief that the Fed is finally “on the case”, and medium- and long-term rates will hold near current levels until the market can see tangible proof inflation is contained. Short-term swap rates are likely to remain vulnerable to further rate hikes, so I expect an asymmetric bias toward higher short-term swap rates heading into tomorrow. This is a huge Fed meeting – fasten your seatbelts!

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 ~4.528%(+131.8 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.548%(+132.8 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.607%(+108.7 bps)

• SOFR swap rates across the curve are sitting at 12-month highs and in some cases, multi-year 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 9/15/2026

• Current 1-Month SOFR = 3.86151% (Prior Day’s Reset: 3.81676%)

• Cap premiums surged last week due to materially higher SOFR swap rates

• A significant uptick in rate volatility also contributed to higher cap premiums (See Chart 3, below)

• Swap rates moved higher last week mainly due to sustained higher oil prices and sticky US inflation data

• 1-Month Term SOFR continues to tick higher in anticipation of a Fed rate hike this week

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.