Rates Drift Higher as Decline in Oil Prices Pauses

Flash Update: US RATE MARKETS – WEDNESDAY SEPTEMBER 23, 2026

• US Treasury yields and SOFR swap rates are drifting higher this morning as the decline in oil prices levels off; Traders assess latest Middle East developments

• Sentiment continues to gradually improve on the Middle East outlook, leading to renewed optimism that the US and Iran are gearing up for another round of negotiations

• This morning, President Trump said that his officials had “very good” talks with Iranian envoys in New York, reviving hopes for a diplomatic solution to the conflict

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

• Interest rates are likely to continue to track the direction of oil prices for the near term

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

• Odds for a 25 bp October Fed rate hike have drifted a touch lower this week and 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 going forward

• Short-term SOFR swap rates are trading up ~2-3 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~2-3 bps currently, depending on tenor

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

Good morning – US Treasuryyields and SOFR swap rates are edging higher this morning, as the decline in oil prices has leveled off. Crude oil prices ended their longest losing streak this year, with traders now waiting for further progress in efforts to end the US-Iran war. The price of Brent crude oil climbed above $100 a barrel this morning, snapping a five-day run of losses, and reminding market participants we are far from out of the woods on the conflict in the Middle East.

The news out of the Middle East has leaned positive this week, which is keeping rates in a relatively tight range so far. President Trump told reporters that his officials had “very good” talks with Iranian envoys in New York, reviving hopes for a diplomatic off-ramp to the conflict. President Trump added that the three-hour session was “very productive” and another was being planned for the near future. However, Iran laid down “firm positions” for the reopening of the Strait of Hormuz, including the US immediately lifting a naval blockade, unfreezing Iranian assets and ending the war “on all fronts”. That sounds like a tall order to me, given the US rhetoric of late.

Markets are desperate for a solution to the conflict, so I understand why optimism is building on the news we have seen the past few days. However, given the minimal market move this week, it feels like cautious optimism at best. I still expect interest rates to track the direction of oil prices for the near term. If oil remains near $100, rates are likely to continue to creep higher. Let’s hope real progress can be made towards peace in the Middle East and a resumption of normal energy markets.

Market participants are also looking to the summit between President Trump and China’s Xi Jinping later this week for signs of progress on trade and other economic issues. President Trump is welcoming Xi to Washington for a visit that is anticipated to focus more on glitz and pageantry than policy. Markets have low expectations for breakthroughs at the summit on long-standing disputes. From my perspective, the US-China summit is meant to set the stage for more substantive talks later this year.

Fed officials continue to stress the need for policy vigilance after last week’s US interest-rate hike. Overall, the “Fed-speak” since the meeting has been decidedly hawkish. Fed Governor Barr and Chicago Fed President Goolsbee are scheduled to speak later today. Economic data is light today, so I expect the market’s focus to remain on the Middle East and oil prices. Fed-speak may grab some of the attention today.

CHART OF THE DAY:

A: Oil Declines (Slightly!) as Hope Mounts for a Diplomatic Offramp – Markets Wait for “Real” Progress

Source: Bloomberg, LLP | PRICE OF BRENT CRUDE OIL YTD 2026

“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 and more broadly, on what AI really “means” for the US and global economy. Overall market sentiment, and perhaps even economic performance, may be impacted by AI 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 has shrugged off the interventions.

FOMC Update:

• Market implied odds for a 25 bp October Fed rate hike ticked a touch higher yesterday and are currently sitting at ~55.4%.

• Warsh and the FOMC helped rebuild their “market” credibility last week by backing up hawkish talk with a 25 bp rate hike.

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading up ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~2-3 bps. 5Y and 10Y SOFR swap rates are trading up ~2-3 bps 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 EDGE HIGHER AS DIP IN OIL PRICES PAUSES

SOFR swap rates are ticking higher this morning as the reduction in oil prices we saw the past few trading sessions has levelled off. Traders are being careful not to overreact to the latest Middle East news headlines and rumors – they have been head-faked numerous times during the conflict and remain wary. I would describe the market sentiment as “cautiously optimistic” at this point.

I still feel strongly that swap rates are likely to start to drift lower if the reduction in oil prices is sustained. 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 sustained lower rates; there is still too much uncertainty. As long as “the Middle East crisis” and high oil prices continue, the risk of higher rates and another Fed rate hike remain front and center for the market.

I would also say that the FOMC definitely grabbed some of the market spotlight last week, as an active Fed is now firmly back in play, creating further uncertainty about what’s next for rates. Based on what I heard from the Fed last week and the Fed-speak this week, the FOMC has a tightening bias – how long that lasts is the big question.

President Trump’s “positive” update on the Middle East this morning may signal the beginning of fresh diplomatic efforts to end the war, or it may just be another temporary pause leading nowhere. Stay tuned! The rate markets will remain susceptible to headline risk for the foreseeable future.

US-IRAN WAR IMPACT: Key SOFR Swap Rate Movements Since The US-Iran War Began

• The 1-Year SOFR swap rate closed at 3.42% on Friday 2/27/2026 – it is currently trading at ~4.510% (+109.0 bps)

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27/2026 – it is currently trading at ~4.648%(+143.8 bps)

• The 3-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.647%(+142.7 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.599%(+137.9 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.601%(+108.1 bps)

• SOFR swap rates are currently at or near 12-month highs across the curve.

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 – Prior Six Months

Source: StreetStats | US Treasury Yields – Prior Six Months

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 9/23/2026

• Current 1-Month SOFR = 3.89851% (Prior Day’s Reset: 3.89702%)

• Rate volatility has drifted a touch lower this week due to relatively quiet, range bound rate markets

• Market uncertainty surrounding the path forward for interest rates remains elevated

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.