Rates Dip as Oil Prices Retreat

Flash Update: US RATE MARKETS – THURSDAY SEPTEMBER 17, 2026

• US Treasury yields and SOFR swap rates are lower this morning as oil prices retreat – Swap rates are down ~5-8 bps across the curve currently

• Yesterday the FOMC raised the overnight benchmark rate 25 basis points to 3.75% Lower Bound / 4.00% Upper Bound

• The FOMC also signaled that they anticipate at least one more 25 basis point rate hike this year, citing ongoing inflation concerns

• Market participants, however, quickly shifted focus away from the Fed and back to declining oil prices, hence the dip in rates this morning

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

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

• The next FOMC rate decision is due Wednesday, October 28th at 2:00 PM

• Odds for a 25 bp October Fed rate hike are currently sitting at ~55.4% this morning

• Next up for “key” economic data: GDP, PCE, Personal Income and Personal Spending data print on 9/30 at 8:30 AM

• Note: Given the tight-lipped, “no forward guidance” Fed approach, ALL economic data is likely to be more thoroughly scrutinized by market participants

• Short-term SOFR swap rates are trading down ~3-7 bps this morning, depending on tenor

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

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

Good morning – US Treasuryyields and SOFR swap rates are moving lower this morning, mainly due to a retreat in crude oil prices overnight and this morning. Signs that supply disruptions in the Middle East were set to ease helped drive the pullback in crude. Despite the Fed rate hike yesterday, I still believe that rates will track the direction of oil prices for the near term. Now, markets will weigh what comes next after the Fed rate hike and pledge to contain inflation helped ease worries over price pressures that had sent bond yields to the highest levels in decades. Falling oil prices are bolstering hopes that the worst fears over inflation will not materialize. SOFR swap rates across the curve are currently 5-8 bps lower than yesterday’s closing levels.

FOMC Rate Decision Recap:

Yesterday, the FOMC unanimously decided to raise the overnight rate by 25 basis points to 3.75% lower bound / 4.00% upper bound, ending a two-year easing cycle. The latest dot-plot suggests the majority of the FOMC see this as the start of a new but shallow hiking cycle, with another 25 bp hike possible later this year. Bottom line, the surge in bond yields and fears of sustained higher inflation were enough to get the Fed off the sidelines and into the game. From my perspective, the unanimous decision tells me that even if Warsh did not want to raise rates yesterday, he would have been outvoted!

Chair Warsh sounded like a hawk yesterday but was tight-lipped on any real forward guidance for markets. I believe that an additional 25 basis point rate hike this year remains contingent on a resolution to the crisis in the Middle East and perhaps more importantly, sustained lower oil prices. We are seeing that on display this morning – a day after the Fed hiked, rates are down a good clip due to lower oil prices. Lower oil prices are likely to lead to lower rates.

I also believe another rate hike will be contingent on the economic data we see before the October meeting. Progress towards peace in the Middle East leading to lower oil prices may be enough to curtail inflation and subvert another Fed rate hike this year. Political issues could also factor into the October rate decision, which precedes the mid-term elections. I could easily see the Fed waiting until the December meeting to hike to avoid any political overtones. Odds for an October rate hike are currently sitting at ~55.4%.

CHARTS OF THE DAY:

A: FOMC – Summary of September Summary of Economic Projections (SEP)

Source: Bloomberg, LLP | SEPTEMBER 2026 FOMC SEP

B: Latest Dot Plot Shows a Hawkish Fed

Source: Bloomberg, LLP | DOT PLOT MOVEMENTS - JUNE VS. SEPTEMBER FED MEETINGS

C: Fed Rate Hike Expectations Tick Higher Post-Meeting

Source: Bloomberg, LLP | FED RATE HIKE EXPECTATIONS THROUGH DEC 2027

“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 October Fed rate hike are currently at ~55.4%.

• Warsh helped rebuild his “street cred” yesterday by backing up his hawkish talk with a 25 bp rate hike.

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading down ~3-4 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 ~7-8 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently trading down ~5-6 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 DIP AS CRUDE OIL PRICES RETREAT

SOFR swap rates are moving lower this morning on the back of lower crude oil prices. Swap rates are likely to continue to drift lower if the reduction in oil prices continues. However, make no mistake – sentiment is likely to shift quickly if oil prices move higher, or if progress towards peace remains elusive. I am certainly not ready to call for lower rates – as long as the crisis and high oil prices continue, the risk of higher rates and another Fed rate hike remain front and center for the market.

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 ~4.553%(+134.3 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.547%(+132.7 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.554%(+103.4 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

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 9/17/2026

• Current 1-Month SOFR = 3.88692% (Prior Day’s Reset: 3.88572%)

• The FOMC announced a 25 bp rate hike yesterday and signaled there may be more to come this year

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.