Rates Dip as Oil Eases

Flash Update: US RATE MARKETS – FRIDAY SEPTEMBER 25, 2026

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

• Long-end US Treasury yields, and SOFR swap rates are up slightly this morning as inflation fears persist

• Rates across most of the curve dropped a few bps this morning on news the US & Iran are talking “behind the scenes”

• The US and Iran are rumored to be discussing a deal to reopen the Strait of Hormuz

• The news headlines this morning were enough to push oil prices down off the highs we witnessed earlier this week; Brent crude oil currently at ~$104.5

• Rates surged this week on higher oil prices, geopolitical instability, a surging US budget deficit and a bump in Fed rate hike expectations

• 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 this week, odds for a 25 bp October Fed rate hike jumped to ~64.2%

• 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 ~1-4 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 trading slightly lower this morning as markets regroup after a tumultuous week! The dip in rates this morning is mostly due to somewhat positive news out of the Middle East this morning, which led to a small decline in crude oil prices. From my perspective, what we saw this week in the rate markets (and have been seeing for months) is likely to continue as long as the conflict in the Middle East remains unresolved. The conflict in the Middle East, and the price of oil, remain the primary market catalysts. The bias for rates remains squarely to the upside. Short-end rates are likely to continue to feel pressure of increased Fed rate hike expectations, and the long end will continue to feel upward pressure if the threat of higher inflation remains. For the week, a material bump in rates, and a spike in volatility, once again pushed cap premiums higher.

Rates across the curve have now moved into territory not seen since before the Global Financial Crisis. The question rate traders are wrestling with centers around how long it will last – is this the “new normal” for rates markets? Have we finally come “all the way back” from the GFC and Covid epidemic? I am starting to get a sense that market participants believe that the massive move in rates this year is about more than just the US-Iran created oil crisis. Much more. The surging US deficit and spending and massive paradigm shift being created by AI make it more likely we are going to experience higher rates going forward. Yes, I do expect some rate relief from lower oil prices – that will take a big bite out of the inflation fear, but I am starting to question the magnitude of the rate relief and end to the conflict will provide. It could take many months to recover.

CHARTS OF THE DAY:

Yields on US Treasuries have surged, with nearly all US benchmark yields hovering around or above 5%. This is due to various factors including high energy prices, large US budget deficits and rising FOMC rate hike expectations.

A: A Long Week for Rate Traders as Swap Rates March Higher

Source: Bloomberg, LLP | 2-Year (White) & 3-Year (Orange) SOFR Swap Rates – Prior 5 Trading Sessions

B: Treasury Yields Approach Levels Not Seen Since Before the Global Financial Crisis

Source: Bloomberg, LLP | US TREASURY YIELD INDEX SINCE 2006

C: Rate Volatility Rises in Turbulent, Uncertain Market

Source: Bloomberg, LLP | BofA “MOVE” Composite Treasury Volatility Index Since 2021

“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 this week and are currently sitting at ~64.2%.

• 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 ~1-4 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.

HART 1:US RATES SNAPSHOT: 10:00 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 | 10:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES DRIFT LOWER AS TRADERS TAKE A BREATHER AND REGROUP

SOFR swap rates are drifting lower this morning as traders regroup after a tumultuous week in the market. This is simply more of the same market theme we have been stuck in for months – however, it is starting to sink in that we may be in a new market environment that may take months to unwind, if it does! Yes, I do believe rates will drop as oil prices retreat, the big question is how much. 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 ~4.571%(+115.1 bps)

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27/2026 – it is currently trading at ~4.736%(+152.6 bps)

• The 3-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.747%(+152.7 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.742%(+152.2 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.791%(+127.1 bps)

• SOFR swap rates are currently at or near multi-year 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 = 3.90098% (Prior Day’s Reset: 3.90031%)

• Implied volatility has moved significantly higher on this week’s dramatic rate move(See far right of Chart 3, below)

• Swap rates moved materially higher this week on strong economic data, higher oil prices, and a surging US budget deficit, 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.