Employment Report Crushes Expectations

Flash Update: US RATE MARKETS – FRIDAY SEPTEMBER 4, 2026

• US Treasury yields and SOFR swap rates are higher this morning, after a significantly stronger-than-expected Employment Report signaled the US labor market remains solid

• Fed-sensitive short-end rates moved the most this morning, and odds for a September rate hike ticked higher

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

• Due to the blowout jobs report, odds for a 25 bp September Fed rate have jumped to ~61.3%

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

• A drawn-out conflict is likely to keep upward pressure on oil prices, and interest rates for the near term

• Next up for key economic data: August PPI prints on Thursday 9/10; August CPI prints on Friday 9/11 – both are released at 8:30 AM

• Short-term SOFR swap rates are trading up ~3-4 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 down ~1 bp this morning, depending on tenor

Good morning – US Treasuryyields and SOFR swap rates are moving higher this morning on the back of a blowout August jobs report. US job growth surged in August, and the unemployment rate held steady, suggesting the labor market has more momentum than previously thought. Nonfarm payrolls increased 162,000 last month and July’s job losses were upwardly revised. The August increase crushed market expectations and signaled that the job market remains solid. The Unemployment Rate remained at 4.1%. The jobs report suggests the labor market is powering through uncertainty from the Iran war and pressure from inflation. 

From my perspective, the August jobs data “green lights” 25 bp rate hike next week. Whether the Fed will proceed with a hike is another matter, but I do feel like they have the breathing room to tighten, should they feel the current level of inflation merits more restrictive policy. All that said, I think next week’s CPI data, and to a lesser extent, PPI, will be key determinants in whether the Fed tightens or holds off for another meeting. Currently, odds for a 25 bp rate hike next week are sitting at ~61.3%.

CHART OF THE DAY:US August Employment Recap – Jobs Data Blows the Doors Off Expectations

Source: Bloomberg, LLP | EMPLOYMENT REPORT RECAP

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.

• 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 Fed Governor Waller’s comments yesterday, the upcoming inflation data will be an “all hands on deck” moment for markets.

• Odds for a 25 bp September Fed rate hike have ticked up to ~61.3% this week.

SOFR Swap Market - Quick Summary:

• The 1Y SOFR swap rate is trading up ~4-5 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~3-4 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 down ~1 bp from yesterday’s closing levels.

• Back-end swap rates dipped slightly as bond traders increasingly anticipate a Fed rate hike to alleviate inflation pressure.

CHART 1:US RATES SNAPSHOT: 9:45 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 | 9:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES HIGHER ON STRONG JOBS REPORT 

SOFR swap rates are higher this morning as markets reacted to the strong Employment Data. Swap rates, however, are not running away to the upside, given the approaching Labor Day long-weekend. That said, the blowout jobs data released this morning likely puts the labor market on the backburner for the Fed and ensures that inflation remains in the spotlight. As such, next week’s PPI (9/10) and CPI (9/11) inflation data may be the critical data that decides if the Fed hikes 25 bps or holds off for another meeting.

I expect the bias for rates to remain to the upside, at least until we see the inflation data next week. The conflict in the Middle East remains a huge wildcard for markets – there is just too much uncertainty to predict a viable outcome. This much is clear to me – there is not likely to be any significant rate relief until oil prices drop significantly, and so long as the inflation threat looms, upward pressure will remain on swap rates.

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 ~4.244%(+103.4 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27/2026 – it is currently trading at ~4.271%(+105.1 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27/2026 – it is currently trading at ~4.400%(+88.0 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 9/4/2026

• Current 1-Month SOFR = 3.76115% (Prior Day’s Reset: 3.74444%)

• Rate volatility has ticked higher this week and 1-Month Term SOFR has been rising as we approach the FOMC meeting

• Cap premiums are materially higher than they were last week at this time

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.