Market Regroups After Yesterday's Rate Turbulence

Flash Update: US RATE MARKETS – THURSDAY SEPTEMBER 24, 2026

• Short-end US Treasury yields, and SOFR swap rates are drifting a touch lower as traders regroup from yesterday’s unexpected market turbulence

• Long-end US Treasury yields, and SOFR swap rates continue to tick higher as the fear of higher sustained inflation remains front and center for markets

• The combination of market catalysts yesterday pushed rates materially higher across the curve and increased the odds for on October Fed rate hike

• 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

• Due to the bump in rates, odds for a 25 bp October Fed rate hike jumped to ~70.9% yesterday and are holding there 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 down ~3-4 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1-3 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 mostly steady this morning – at least for now. Short-end rates are down a few ticks as traders cover positions and recover from yesterday’s material rate increase. Long-end rates continue to tick higher as the fear of sustained higher inflation remains front and center for markets. The conflict in the Middle East remains the primary market catalyst. The bias for rates remains squarely to the upside. (That said, if oil prices start to drop, we could see rates dip a touch lower – so far, those moves have been short-lived as oil prices remain elevated). Short-end rates continue to feel pressure due to increased Fed rate hike odds, and the long end will continue to feel upward pressure if the threat of higher inflation remains. Currently, Brent crude oil is sitting at ~$106 a barrel.

Yesterday, rates surged after strong economic data signaled the US economy and US manufacturing remain on very solid footing. That will help give the Fed confidence they can continue to raise rates without damaging the economy or job market. A defiant speech to the UN by Iran greatly diminished hopes for productive negotiations between the two sides, though slim hope remains that they will come to their senses, get back to the negotiating table, and end the conflict. Iran’s UN speech sent oil prices higher on renewed inflation fears, which spooked markets. The result: materially higher rates and increased odds for a Fed rate hike.

Market participants are also looking to the summit between President Trump and China’s Xi Jinping 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.

The only data on the horizon today is New Home Sales, released at 10:00 AM. In terms of upcoming key economic data, markets will look ahead to the release GDP, PCE, Personal Income and Personal Spending data to be released on 9/30 at 8:30 AM.

CHARTS OF THE DAY:

A: Rates Gap Higher On Strong Economic Data, Higher Oil Prices and Middle East Uncertainty – Odds for an October Rate Hike Rise

Source: Bloomberg, LLP | 2-Year (White) & 3-Year (Blue) SOFR Swap Rates – Prior 3 Trading Sessions

B: Crude Oil Surges as Hopes Dim for Peace in the Middle East  

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 jumped higher yesterday and are currently sitting at ~70.9%.

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

• 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.

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 ~3-4 bps. 5Y and 10Y SOFR swap rates are trading down ~1-3 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: 8:45 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 | 8:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES MIXED THIS MORNING AS MARKET REGROUPS

SOFR swap rates are morning – short-end rates are down a few ticks as traders cover positions and assess what’s next for the FOMC. Long-end rates are ticking lower as the threat of higher sustained inflation remains front and center for rate markets. Expect increased volatility and uncertainty as the market navigates a tough stretch for traders. I also expect the rate bias to remain firmly to the upside for the short-term.

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 ~4.546%(+112.6 bps)

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27/2026 – it is currently trading at ~4.715%(+150.5 bps)

• The 3-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.718%(+149.8 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.705%(+148.5 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.724%(+120.4 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: 3.89851%)

• Rate volatility surged on yesterday’s dramatic rate move

• Swap rates moved materially higher yesterday on strong economic data and higher oil prices, leading to materially higher cap premiums

• 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.

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.