Rates Fall as June PPI Prints Softer-Than-Expected

Flash Update: US RATE MARKETS – WEDNESDAY JULY 15, 2026

• UST yields and SOFR swap rates moved lower this morning after a softer-than-expected June PPI result

• Core PPI significantly beat forecasts, posting at 4.7% vs. expectations calling for 5.1%

• The positive PPI data follows an upbeat CPI print yesterday, and has led to materially lower rates this week

• 2-Year SOFR swap rates closed Monday night at ~4.14% - it is currently trading at ~4.01% (~-13 bps)

• The dip in SOFR swap rates has provided some relief for cap premiums this week

• The US/Iran conflict remains a primary driver for the rate markets; Crude oil is sitting at ~$85 a barrel – inflation “euphoria” may be short-lived!

• This morning, President Trump vowed to escalate the conflict until Iran “relents” on the Strait of Hormuz

• Renewed hostilities between the US and Iran have rekindled fear of a return to all-out war

• Next up for data: June Retail Sales will be released tomorrow, 7/16 at 8:30 AM

• FOMC Chair Warsh continues his semi-annual testimony in Washington DC this morning at 10:00 AM – Warsh will present to the Senate Banking Committee

• The next FOMC rate decision is due on Wednesday, July 29th at 2:00 PM

• Short-term SOFR swap rates are trading down ~2-4 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~3-4 bps currently, depending on tenor

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

Good morning – US Treasury yields and SOFR swap rates are moving lower this morning on a better-than-anticipated June PPI result. The positive PPI result, following on the heels of yesterday’s positive CPI surprise, has temporarily alleviated some of the market anxiety surrounding the prospects for higher inflation. The positive CPI and PPI data likely take a July rate hike off the table and keep the Fed on hold.

That said, I do not believe we are out of the woods just yet regarding the risk of higher inflation. The drop in June CPI and PPI can be largely traced to lower prices at the pump. Should oil process begin to rise materially again, I am not sure how long reduced gasoline prices will last. We may only be experiencing a temporarily “inflation reprieve”. I am not ready to commit to sustained lower rates just yet.

Overnight, the tensions in the Middle East escalated, and this morning, President Trump stated he plans to escalate the conflict until Iran “relents” on the Strait of Hormuz. Bottom line: It is more of the same – ever-shifting rhetoric and objectives, and an unclear and uncertain path to a resolution. Market uncertainty is rising once again. I believe that most of the “drop” in inflation is due to reduced gasoline prices. My view is that the current “positive vibes” about inflation could evaporate quickly if this conflict once again escalates and oil prices surge. Traders will continue to anxiously monitor the situation – particularly the price of oil and the level of tanker traffic through the Strait of Hormuz (or lack thereof). The situation in the Middle East will remain a primary market catalyst for the foreseeable future.

Tomorrow, traders will see June Retail Sales results. I don’t think the sales data is as anticipated as the inflation data was, but traders will still be keen for a “check-in” on the state of the US consumer. Expectations for June Retail Sales are as follows: Retail Sales Advance MoM, 0.2% (vs. 0.9% the prior month); Retail Sales less Autos MoM; -0.1% (vs. 0.8% prior); Retail Sales less Autos & Gas MoM, 0.4% (vs. 0.5% prior).

“Key News” the market is tracking includes:

• Chair Warsh continues his semi-annual testimony is Washington DC this morning at 10:00 AM. Traders mostly ignored his comments yesterday, which did not offer any new information or forward guidance. He did reiterate that the Fed is “deeply committed” to price stability. Markets may pay more attention to Warsh’s comments this morning now that the inflation data is in the rear-view mirror. The CPI data grabbed the market’s attention yesterday!

• Geopolitical developments continue to weigh on markets.Developments in the US/Iran “war” will continue to dominate market sentiment.

• 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, could be impacted by “tech” earnings for the foreseeable future.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading down ~2-3 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 ~3-4 bps this morning. The very back-end of the swap curve is currently down ~1-2 bps from yesterday’s closing levels.  

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

CHART 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)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 10:00 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES SLIDE LOWER ON SOFTER-THAN-EXPECTED JUNE PPI DATA; FED RATE HIKE ODDS DROP

SOFR swap rates are moving lower this morning off the back of a softer-than-expected June PPI result. The unexpected drop in PPI helped to sooth inflation jitters and reduced the odds for a Fed rate hike in July, pushing rates lower across the curve.

The market will now prepare for Fed Chair Warsh’s second day of testimony in Washington DC. The continuing uncertainty regarding the US-Iran war will continue to weigh heavily on markets for the near term. Tomorrow’s release of June Retail Sales will also be on the market’s radar.

Odds for a Fed rate hike at the July meeting have plunged to ~8% this morning, given the positive inflation data we saw this week. Odds for a rate hike in September are currently sitting at ~52%. One thing is certain: Expectations for the Fed and for the path forward for interest rates are changing and evolving almost every day!

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 – it is currently trading at ~4.014%(+80.4 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.995%(+77.5 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.141%(+62.1 bps).

CHART 2:Short-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; YTD 2026

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 2026

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)

CHART 3, 3A & 3B: JUNE PPI RECAP: PPI DATA BEATS EXPECTATIONS, LIKELY KEEPING FED “ON HOLD” IN JULY

Core PPI, which excludes more volatile food and energy categories, increased 4.7% from a year earlier and 0.2% from May. Both prints were below market expectations. A decline in energy costs helped curb producer inflation pressures, which may give the Federal Reserve room to postpone an interest-rate increase. Headline PPI rose 5.5% YoY, well below expectations calling for 6.5%. Energy prices fell 6.4% in June, while food prices fell for the first time in three months. However, with the Middle East conflict heating up again, the price reprieve may prove short-lived.

CHART 3:June PPI Recap & Prior Month’s Revisions

Source: Bloomberg, LLP | JUNE PPI RECAP

CHART 3A:Core PPI Since 2020

Source: Bloomberg, LLP | HISTORICAL CORE PPI DATA SINCE 2020

CHART 3B:Fed Rate Hike Expectations Drop Further on Encouraging PPI Inflation Data

Source: Bloomberg, LLP | MARKET IMPLIED FED POLICY EXPECTATIONS TO JULY 2027

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.

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, similar to how you purchased the original cap. Market pricing discovery is a key component to any cap transaction – new caps, extensions or terminations.

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, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. We are also seeing a dramatic increase in swap termination advisory requests recently, as clients contemplate refinancings. Lower rates have sparked refinancing activity, which in some cases necessitates unwinding an existing swap. Please let us know if you would like to learn more about interest rate swaps, or swap 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 7/15/2026

• Current 1-Month SOFR = 3.70516%(Prior Day’s Reset: 3.67637%)

• Fresh hostilities between the US and Iran are increasing market uncertainty and fear of higher inflation

• Rate volatility remains relatively subdued as markets weigh a host of market variables

• However, the subdued rate volatility may not last if conditions in the Middle East worsen

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.

^NOTE:RATE MARKETS ARE VOLTILE - 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.

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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.