Rates Move Lower on Dovish Fed Comments, Traders Brace for August Employment Data

Flash Update: US RATE MARKETS – THURSDAY SEPTEMBER 3, 2026

• US Treasury yields and SOFR swap rates are lower this morning, mainly due to “dovish” comments from Fed Governor Waller

• Waller implied the August inflation data will be the key determinant for a September rate hike; He added that a rate hike is not a forgone conclusion

• Odds for a 25 bp September Fed rate hike have dipped to ~52.6% on Waller’s comments

• The next FOMC rate decision is due on Wednesday, September 16th at 2:00 PM

• Renewed skirmishes in the Strait of Hormuz are putting pressure on crude oil prices, which is keeping upward pressure on term rates

• Markets are beginning to fear that the US-Iran conflict may continue indefinitely, leading to sustained higher inflation and reduced economic growth

• Despite the upcoming FOMC meeting, the US-Iran conflict, and the price of crude oil, remain the primary drivers for the rate markets

• Next up for key economic data: The August Employment Reports prints tomorrow, 9/4 at 8:30 AM

• Short-term SOFR swap rates are trading down ~1-2 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1-2 bps currently, depending on tenor

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

Good morning – US Treasuryyields and SOFR swap rates are lower this morning, mainly due to comments from Fed Governor Waller. Waller said that the August inflation data will be the key determinant in whether the Fed considers a rate hike at the September meeting. On the flip side, Waller did say that he would support a rate hike in September should the inflation data miss expectations to the upside. Waller said he would be willing to support holding rates in September if there is continued progress toward the 2% goal but would consider a rate hike if inflation comes in hot. Traders latched on to the comments, sending rates lower across the curve this morning. In short, Waller’s comments reminded the market that a September rate hike is not a foregone conclusion.

Regarding the Middle East conflict, the US and Iran continue tit for tat military strikes, with Iran hitting merchant vessels and the US striking Islamic Revolutionary Guard Corps sites. Energy prices that dipped during a lull in fighting for most of August have risen again, putting more pressure on the US to end the conflict. In short, the conflict in the Middle East remains in limbo, somewhere between a ceasefire and all-out war. Currently, WTI crude Oil is trading at $92.26 per barrel, and Brent crude oil is trading at $96.41. The cost of diesel fuel reached four-year highs.

Putting the Middle East conflict to the side for a moment, the big event this week is tomorrow’s release of the August Employment Report. Despite Waller’s comments, I still think this is a critical “pre-Fed” data reference point. A strong report would likely provide the Fed the “green light” to tighten without risking damage to the US labor market. From my vantage point, a weak Employment Report would have traders rethinking a September rate cut. The opposite result would likely increase the odds for a 25 bp hike in September. The JOLTS job openings data and ADP private payrolls report both printed a bit weaker-than-expected, signaling the job market may be weakening slightly, which has created some second guessing regarding a September rate cut.

Expectations for tomorrow’s August Employment Report are as follows: Non-Farm Payrolls, 55k (vs. -23k the prior month); Private Payrolls, 50k (vs. 30k prior); Average Hourly Earning MoM, 0.3% (vs. 0.1% prior); Unemployment Rate, 4.1% (unchanged from prior month).

Market uncertainty remains at elevated levels. If anything, market sentiment deteriorated this week. Traders continue to try to manage myriad market forces currently. Geopolitical risks remain at the fore for markets, but tariffs, possible Treasury Department intervention, a hawkish, tight-lipped Fed, the release of key economic data and a changing economic paradigm due to the growth of AI are but a sample of the various market forces at work.

“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 intervention sets the stage for more to come. Stay tuned!

FOMC Update:

• Fed Chair Warsh’s hawkish comments in Jackson Hole last week increased the odds for a September Fed rate hike. Warsh talked tough on inflation: He reassured markets that he is laser focused on reducing inflation and stressed that the primary “inflation fighting” tool at the Fed’s disposal is adjusting the benchmark rate. Warsh also revealed that the Fed’s preferred inflation gauge is PCE. From my perspective, Warsh implied that he sees the need for a rate hike to combat inflation, but he simply wants more information before proceeding.

• That “information” may be coming in the near term, beginning with the release of the August Employment Report on Friday 9/4. Other data that will be squarely on the Fed’s radar prior to the meeting includes PPI (9/10), CPI (9/11) and Retail Sales (9/16). The FOMC will see plenty of key data prior to the rate decision due on 9/16. Given Waller’s comments this morning, the upcoming inflation data will be an “all hands on deck” moment for markets.

• Odds for a 25 bp September Fed rate hike have dipped to ~52.6% on Waller’s comments. Those odds are still up materially from one week ago.

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading down ~5-6 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~5-6 bps. 5Y and 10Y SOFR swap rates are trading down ~3-5 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently down ~2-3 bps from yesterday’s closing levels.

CHART 1:US RATES SNAPSHOT: 9:30 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 | 9:30 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES DIP ON DOVISH FED COMMENTS; TRADERS BRACE FOR JOBS DATA, MONITOR MIDDLE EAST

SOFR swap rates are moving lower this morning, mainly due to dovish (or perhaps more correctly, less hawkish) comments from Fed Governor Waller. In short, Waller said he believes the rate decision this month will hinge on the August inflation data. He also noted underlying inflation is “better than core figures indicate”, but if inflation comes in hot, policymakers will consider a rate hike at the September meeting. For some reason, Waller’s “dovish” (?) comments dialed down the odds for a September rate hike, and pulled rates down this morning, particularly on the Fed sensitive short end of the curve. I don’t see the comments as particularly dovish, but it does highlight for me that a September rate hike is far from a “done deal”. I expect increased rate volatility to continue.

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 ~4.185%(+97.5 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.223%(+100.3 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.371%(+85.1 bps)

• SOFR swap rates across the curve are sitting at 12-month highs

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 9/3/2026

• Current 1-Month SOFR = 3.74444% (Prior Day’s Reset: 3.73712%)

• Rate volatility has ticked higher this week, mainly due to volatility created by Chair Warsh’s Jackson Hole testimony(See Chart 3)

• As such, cap premiums are materially higher than they were last week at this time

• Dovish Fed comments this morning pushed rates a bit lower, providing some relief for cap premiums

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.