Our October analysis of the Q2 PrecisionLender commercial loan and deposit pricing database looks at September 2026 activity, a month defined by a sharp move in interest rates. A quarter-point Federal Reserve rate hike on September 18 was only part of the story, as longer-term market rates climbed even further and pushed funding costs higher, particularly on fixed-rate structures.
Coupons moved higher across the board, but spreads and net interest margin (NIM) slipped, even as pricing volume returned to near its highs for the year. We also revisit swaps for the first time in several months and note a meaningful uptick in deposit rates in the Regional+ segment.
Read on for more details.
Data Notes
September pricing activity rebounded from a softer August, rising about 10% month over month. Volume indexed at roughly 120, above the 2026 average of 114 and just below the year's peaks in April (122) and July (121).
Priced Commercial Loan Volume, Indexed to January 2026 = 100
The Q2 PrecisionLender all-in marginal funding curve moved higher at every tenor, by as much as 58 basis points (bps), between the August 29 and September 30 snapshots. At the short end, the one-month rate rose about 20 bps (3.95% to 4.15%), reflecting the widely expected quarter-point Fed hike on September 18.
The larger moves came further out on the curve. The 60-month rate rose about 58 bps (4.62% to 5.20%), and the 120-month rate rose about 53 bps (5.05% to 5.58%), with the biggest increases concentrated in the 24- to 84-month range most relevant to fixed-rate pricing. That move tracked the broader bond market, where the 10-year Treasury climbed from around 4.80% in early September to as high as 5.30% at one point in early October.
All-In Marginal Funding Curve
Not surprisingly, fixed-rate funding costs followed the curve higher. Fixed-rate COF rose 37 bps (4.65% to 5.02%) in September, the largest monthly increase of 2026, and is now up 92 bps (4.10% to 5.02%) since January. SOFR COF rose 18 bps (4.32% to 4.50%) after holding near 4.30% for most of the year.
All-In Cost of Funds by Month, Rolling Trend
That leaves fixed-rate funding 52 bps above SOFR funding, a reversal from the start of the year, when SOFR COF ran higher. Keep in mind that these monthly figures reflect pricing across all of September, and activity in the first 17 days of the month came before the rate hike.
Coupons moved higher on every structure in September. Fixed-rate coupons rose 26 bps (6.17% to 6.43%), their highest level of the year, compared with a roughly 58-bps move at the 60-month point on the curve. SOFR coupons rose 13 bps (5.80% to 5.93%) against the 25-bps index move, while Prime coupons rose 23 bps (6.77% to 7.00%), close to the full amount of the hike.
Coupon Rate by Month, Rolling Trend
The gap between fixed and SOFR coupons has widened to 50 bps, a long way from the near parity of March, when fixed coupons were at 5.82% and SOFR coupons were at 5.83%.
Because September blends pricing from before and after the hike, some of the catch-up may still be ahead. It will be interesting to see whether coupons continue to move higher in October activity. With the 10-year Treasury since easing back to around 5.00% to 5.10%, any further coupon gains could translate into stronger fixed-rate performance.
On spreads, both SOFR and fixed-rate measures ended the month at the low end of their 2026 ranges. SOFR spreads fell 5 bps (2.15% to 2.10%), matching their April low for the year. The fixed-rate coupon over COF fell 11 bps (1.52% to 1.41%), matching its June low, and is down 35 bps (1.76% to 1.41%) since January.
Weighted Average Spread to SOFR
Fixed-Rate Spread Over COF
Prime spreads moved in the opposite direction, rising 10 bps (0.01% to 0.11%). Prime accounts for about 10% of volume.
Weighted Average Spread to Prime
It will be worth watching whether spreads recover as month-end rate levels work their way through pricing in October.
With the curve now positively sloped and fixed-rate economics shifting quickly, we have fielded a number of customer questions about swaps in recent weeks. It has been several months since we last reported on them, so we took another look at how swapped SOFR loans compare with organic SOFR floating-rate loans.
On spread, swapped SOFR loans priced at about 1.85% over the index in September, compared with about 2.10% for organic floaters. That is a gap of roughly 25 bps, slightly narrower than the roughly 31-bps gap in June.
Spread to SOFR: SOFR Swap vs. SOFR Floating
Swaps do carry more fee income. Amortized fees on swapped loans ran about 0.31% in September, compared with about 0.21% on floating loans, an advantage of roughly 10 bps.
Amortized Fee Income: Swap vs. Floating
That fee advantage covers less than half of the spread gap. On a note yield plus fees basis, swapped loans came in about 13 bps behind organic SOFR floaters in September (6.09% compared with 6.22%).
Rising funding costs, combined with coupons that did not fully keep pace, weighed on margins in September. Fixed-rate NIM fell 14 bps (1.82% to 1.68%), its lowest level of 2026, while SOFR NIM fell 9 bps (1.80% to 1.71%).
Net Interest Margin by Month, Rolling Trend
On both structures, NIM fell more than spreads did, which may reflect lower fee income during the month. Since January, fixed-rate NIM is down 39 bps (2.07% to 1.68%), and SOFR NIM is down 17 bps (1.88% to 1.71%).
Checking in on the Community segment, the most notable change came in fixed-rate coupons. Community fixed-rate coupons rose 8 bps (6.39% to 6.47%), while the overall market rose 26 bps. As a result, the Community premium narrowed to about 4 bps, down from 22 bps in August and about 30 bps in June.
Fixed-Rate Coupon: Community vs. Overall Market
The jump in the overall fixed-rate coupon appears to have come largely from the Regional+ segment. On floating structures, the Community segment continues to price a revenue premium. Community SOFR spreads held flat at 2.51%, compared with 2.10% for the overall market, and Community Prime spreads were 0.30%, compared with 0.11% overall.
Deposit rates moved higher in September following the rate hike, led by the Regional+ segment. Interest-bearing non-time deposit rates, our proxy for management-set deposit pricing, rose 8 bps (2.65% to 2.73%) at Regional+ institutions, the first meaningful increase in some time. About 25% of institutions moved rates up by more than 10 bps on the month.
Community institutions have been less responsive so far, with rates up 3 bps (2.02% to 2.05%).
Interest-Bearing Non-Time (MMDA, CWI, Savings) Rate Paid
It will be worth watching whether Community rates follow in the months ahead.
Our banking consultants and data scientists are combing through Q2 PrecisionLender pricing data every day. If there is anything you'd like to know about what they're seeing, please send your questions to insights@q2.com.