This is Matt Graham with the MBS Live Market Update. Last week’s bond market movement was primarily driven by the same thing that’s been responsible for most of the volatility over the past three months, and that, of course, is the Iran war. Starting on Monday, when US markets were still closed for the Memorial Day holiday, news came out regarding the US and Iran being close to agreeing on a, quote unquote, “one-page framework of a memo of understanding that would end the war and begin the sixty-day process of hashing out additional details for a permanent peace agreement.” The biggest sticking point on those additional details continues to be the nuclear material and what’s going to happen to that. If the word memo sounds familiar, that’s because we’ve been talking about it since early May, and remarkably little about that memo has changed according to reports of what it contains. Instead, the market is simply responding to its sense of how close that memo is to being made official. It’s not an oversimplification to say that every time a similar rumor or report hits the newswires, the more the market is willing to react. Wednesday’s news involved Iranian state TV coming into possession of said memo and basically repeating what we already knew about it. Markets viewed that as significant for some unknown reason, again, likely because the more the same news is repeated by different sources, the more traders believe in the existence of the memo and the higher the perceived likelihood is that it will be ratified. Bonds pulled back a bit heading into Thursday, not for any particular reason other than Iran pushing back on the finality of the negotiations. Econ data helped get bonds back to unchanged, however, and that was a bit of a surprise because we’re generally pretty short on econ data being a big market mover right now with the focus on the war. But inflation being the big side effect of the war inflation-related data does have some power to create movement, and we had PCE inflation that morning coming in lower than expected, which was a bit of a pleasant surprise given that CPI and PPI two weeks ago painted very negative pictures of inflation. PCE softened that a bit, and PCE is the more important report, even if it’s not normally the bigger market mover because it comes out later and it is easier to forecast once we already know where CPI and PPI come in. Just after ten AM on the same day, a new Axios report reiterated the same old news on the memo, this time saying a deal had been reached. Sounded pretty epic and final, but it also noted that it needed Trump’s final approval, so it wasn’t really news after all. Nonetheless, yields surged the lowest levels of the week and ended up staying very flat through Friday morning. Then on Friday, shortly before eleven AM, Trump posted on Truth Social that the memo was basically agreed to and he would be in the Situation Room making a final determination. That sounded like the best news yet, but it was only worth a modest rally in the bond market, possibly due to the simple fact that traders are fatigued by the barrage of headlines reiterating the same memo news. And then later in the day, he said no decision was made, and markets didn’t really do anything because they hadn’t moved very much in the first place on that news. Heading into the new week- The news cycle has shifted a bit with Iran saying that all bets are off as long as Lebanon and Israel remain at war, and markets reacted to that forcefully with yields jumping right back up to last week’s highs. As the week continues, there’s zero doubt we’ll see even more back and forth on this peace deal stuff, and there’s no way to know where the chips will fall. As of noon Eastern Time, just before I’m recording this Trump is saying that everybody has been, quote-unquote, “talking too much” and that going silent would be good. Who knows what that will lead to as the day and week continues. And putting war news aside, it is still the biggest week of the month for econ data, with both versions of the ISM reports coming out, job openings coming out, and of course, the big jobs report on Friday. We know there’s at least some willingness to react to the econ data based on what we saw last week, so don’t be surprised to see volatility in both directions. All that having been said, whenever peace becomes official bonds have clearly demonstrated that they have some room to run to stronger levels, and any major news on the war will definitely supersede any major news in terms of econ data. That’s gonna do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBS Live!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.