This is Matt Graham with the MBS Live Market update. There are fairly simple narratives in play for the bond market these days with a correlation between bond yields and oil prices remaining extremely relevant, almost like clockwork. Both have been rising since the expiration of the two week ceasefire a couple weeks ago, and that move accelerated last week surrounding news that strikes could be resuming and that Trump met with oil executives to assess the impact of a prolonged blockade of the straight of whore moves.
At times, it appears that bonds are deviating from their correlation with front month oil futures, but in those cases, there’s usually correlation with longer term futures contracts. In other words, yields still line up with October and December oil prices, even when they’re not lining up with the front month contract. If someone was inclined to make a bond bearish specific case, last week’s funding request from the Pentagon is a good place to start. Even before the war, there was more and more buzz regarding the us. Fiscal path. It’s not seen as an immediate emergency, but rather an eventual reckoning. The Pentagon’s $1.5 trillion budget request for fiscal year 2027 in addition to a $200 billion supplement just for the war is not great news for potential treasury issuance. All told that’s a 50% increase from the previous budget, and combine that with tariff revenue being unwound due to refunds. There’s a huge implication for higher treasury issuance. This is the key reason that rates are as high as they are over the past several years, and a key reason they’ll have a hard time moving significantly lower unless something changes. Of course, a recession or a sharp economic contraction could help, but there are no immediate signs of that in the data. In fact, some of last week’s reports were surprisingly strong in terms of econ data, even though. There wasn’t a ton of big ticket econ data. The new week is starting out on an even more negative notice. Hostilities seem to be flaring overnight. Reports of a US warship being hit by Iranian missiles started that momentum, but it’s been continued by additional war related headlines. For instance, an oil export terminal in the UAE is allegedly on fire after being hit by Iranian missiles. And some reports suggest the US will renew strikes on Iran within 24 hours. Econ data could still have an impact at the margins with the jobs report due out this Friday, but the market is likely to take a majority of its cues from oil prices and war related headlines to whatever extent it can sort through which headlines are valid versus noise. 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.