Rates Drift Lower as Oil Prices Ease

MARKET UPDATE: TUESDAY SEPTEMBER 29, 2026 – 8:45 AM EASTERN

Good morning – US Treasury yields and SOFR swap rates are drifting lower this morning (nothing dramatic) as oil prices eased slightly overnight. The price of Brent crude oil slipped overnight and is currently sitting near ~$104 per barrel. The direction of rates continues to be closely correlated to the direction of oil prices. Due to yesterday’s uptick in SOFR swap rates, odds for a 25 bp Fed rate hike at the October meeting jumped to ~70.3%. I do not have a high level of confidence that the rate dip we are seeing this morning will last – the slight dip in rates is already losing momentum from earlier this morning - there is simply too much going on in the market this week. I still believe that rates are biased to the upside.

Currently, SOFR swap rates are down 1-2 basis points across the curve, providing some small relief for cap premiums. While the market’s focus will remain squarely on the situation in the Middle East, the host of economic data due this week will likely grab some of the spotlight.

President Trump is also set to meet with prominent AI leaders today to discuss AI safety parameters. Traders will be keen to see the results of the meeting – AI and the impact it will have on the economy, jobs, productivity, and human advancement remains a primary driver for markets.

The main “rate” theme continues: The conflict in the Middle East and the price of crude oil continue to be the primary rate markets drivers. Slightly lower oil prices overnight have led to slightly lower rates this morning. However, traders will be focusing on the key economic data released this week. The data deluge starts this morning with the JOLTS jobs and Consumer Confidence reports due at 10:00 AM. On Wednesday, 9/30 we will see revised 2Q GDP, PCE, ADP employment, Personal Income and Personal Spending data all released at 8:30 AM. On Thursday, 10/1 ISM Manufacturing and Prices Paid data and the S&P Global US Manufacturing PMI results are due at 10:00 AM. Last, but certainly not least, we will see the September Employment Report released Friday, 10/2 at 8:30 AM. Traders are likely to pay particular attention to the PCE and Employment Report data releases.

This batch of key data could set the tone for monetary policy for the remainder of the year. This is a tightly bunched timeline for data releases – traders will be paying close attention to the results. Strong economic data and/or higher-than-expected inflation data would likely green light a rate hike at the October meeting. Weaker-than-expected data and/or tame inflation data may give the Fed a good reason to hold off on another rate hike for now and move into wait and see mode.

A full plate of Fed speakers this week rounds out the potential market catalysts traders are facing. With Fed Chair Warsh remaining tight-lipped, traders are likely to be even more focused on Fed-speak (See Chart C, below).

Given the myriad market forces at work currently, the deluge of key economic data on tap, and the full plate of Fed speakers on the tape this week, we may be in for a volatile week for rates. Market uncertainty remains extremely elevated, as does the path forward for interest rates.

CHARTS OF THE DAY:

Yields on US Treasuries surged in September, with nearly all US benchmark yields now 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: Latest FOMC Monetary Policy Adjustment Expectations

Source: ASTDefeasance.com | Latest FOMC Expectations

B: SOFR Swap Rates Remain at Year-to-Date High

Source: Bloomberg, LLP | 1Y, 2Y, 3Y, 5Y & 10Y SOFR OIS SWAP RATES – YTD 2026

C: A Full Plate of “Fed-Speak” is Also in Play for Markets This Week  

Source: Bloomberg, LLP | Schedule of Fed-Speakers Through 10/2/2026

D: Oil Prices Slip Leading to Slightly Lower Rates This Morning…

Source: Bloomberg, LLP | BRENT CRUDE OIL PRICES – PRIOR 12-MONTHS

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.