Rates Drift Higher as Market Participants Seek Direction

Flash Update: US RATE MARKETS – TUESDAY JULY 7, 2026

• UST yields and SOFR swap rates are drifting higher this morning as market participants seek direction

• Rates have been trading in a tight range as traders digest economic data and anxiously monitor developments in the Middle East

• Oil prices have ticked higher this week, which is also contributing to slightly higher rates

• Fresh military strikes by Iran are adding to market apprehension and uncertainty regarding the outlook for peace in the Middle East

• The US/Iran conflict remains a primary driver for the rate markets

• Next up for data: The July FOMC meeting minutes will be released tomorrow, 7/8 at 2:00 PM

• Short-term SOFR swap rates are trading up ~2-3 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 up ~2-3 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates are ticking higher this morning as a quiet market monitors developments in the Middle East and contemplates the FOMC’s next policy move. Traders are also keeping one eye on the equity markets – there is growing trepidation that the tech sector is too rich and due for a significant correction. None of the above variables have been enough to materially impact markets. SOFR swap rates have basically been trading sideways since the end of last week. I think markets have also paused while they assess what is next for the FOMC – the war-induced inflation has put a rate hike in play for the Fed. Keep in mind that before the war began, a rate hike was not “anyone’s base case” – markets were still holding out hope for a ‘goodbye’ rate cut from Chair Powell! The market landscape has changed dramatically from before the war began. The biggest issue right now is the uncertain timetable – the longer the conflict in the Middle East drags on, the more likely we will face more sustained inflationary pressure, which will increase uncertainty surrounding the Fed’s next move!

I expect rates to remain range bound this week given the lack of key economic data. The situation in the Middle East will remain a wildcard for the market. Oil is ticking higher – Brent crude rose ~0.8% to ~$72.60 a barrel this morning following attacks on shipping in and around the Strait of Hormuz, highlighting continued risks to vessels in the critical waterway. That is probably the main reason rates are moving higher this morning! Regarding peace negotiations, many questions remain. Is no news good news? Are we nearing a resolution or simply digging in for protracted negotiations and continued instability in the oil market? We do not have clear answers to those questions yet, which is also putting pressure on short-end rates as the market attempts to predict the Fed’s next move. As we know, the lack of forward guidance from the Fed will make it more difficult to forecast monetary policy changes.

The July Fed meeting minutes will be released tomorrow at 2:00 PM. I do not expect the release of the meeting minutes to dramatically move the market. However, I do expect the minutes to show that the FOMC is very worried about inflation and the uncertainty created by the war. In my opinion, continued “war” uncertainty is likely to keep upward pressure on rates for the near term, particularly on the Fed-sensitive short-end of the curve.

“Key News” the market is tracking includes:

• 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 up ~2-3 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~2-3 bps. 5Y and 10Y SOFR swap rates are trading up ~2-3 bps this morning. The very back-end of the swap curve is currently trading up ~2-3 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: 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)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:45 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES TICK HIGHER AS RATE MARKETS SEEK DIRECTION

SOFR swap rates are ticking a touch higher this morning, as market participants weigh a host of potential market catalysts. News out of the Middle East has been quiet in recent days, which is creating both uncertainty and optimism. The war-induced inflationary pressure has also pulled the Fed back into the spotlight, as markets contemplate a potential rate hike. As such, rates have been trading sideways this week. The 2-year SOFR swap rates closed last Thursday at 3.988% - it is currently trading at ~3.989%. We don’t see a ton of data released this week, so I do expect markets to remain range bound for the near term. Should tension in the Middle East flare up, however, expect rates to continue to creep higher.

Markets will continue to monitor the situation in the Middle East and an increasingly hawkish Fed. The big question for rates centers on inflation – are we facing higher entrenched inflation, or transitory, war-related inflation that will correct quickly? If we are in fact facing higher sustained inflation, expect the Fed to get involved, sooner rather than later, and Treasury yields are likely to rise further. If the price pressure is temporary, which assumes the conflict in the Middle East is resolved quickly from here, we may yet see a significant drop in Treasury yields and SOFR swap rates. Unfortunately, it is extremely challenging to answer the “inflation question” at this juncture.

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 ~3.989%(+77.9 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.937%(+71.7 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.076%(+55.6 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)

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 7/7/2026

• Current 1-Month SOFR = 3.66688%(Prior Day’s Reset: 3.66738%)

• Cap premiums have stabilized; SOFR swap rates are trading in a tight range as the market seeks direction

• Rate volatility remains relatively subdued as the market weighs a host of market variables

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: 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.