This is Matt Graham with the MBS Live Market Update. Since late March, markets have had repeated opportunities to play Deal or No Deal when it comes to ending the Iran war. Sometimes we won, sometimes we lost, but last week’s installment was ultimately a winner, despite being touch and go at times. As a reminder, the mortgage world cares about this stuff due to the following chain of events. Number one, the Iran war caused oil prices to spike, and they remain elevated in general versus pre-war levels. Higher oil implies higher inflation, and higher inflation begets higher rates, all other things being equal. There are some other considerations, but they’re less important than the stuff we just talked about. Rates began last week moving higher as fighting continued over the weekend in Iran, but the tone began to shift almost immediately with Israel agreeing to halt attacks in Lebanon. That’s been one of these thorns in the side of the peace process. Anytime there’s progress between the US and Iran, something happens between Israel and Lebanon that throws things off. Bonds did break from their correlation with oil prices later that day. In other words, yields moved higher despite oil prices moving lower. That was presumably due to a rotation back into stocks and also perhaps some defensiveness ahead of last week’s cycle of Treasury auctions. The Deal or No Deal correlations were again in focus, though, on Wednesday, as Trump said the US would be attacking Iran, quote, “very hard.” Bonds lost ground modestly, and I think that has a lot to do with the bond market taking those comments with a grain of salt because they know there’s going to be further back and forth with this negotiation. And indeed, the following day, Trump not only canceled further attacks, but also made the most forceful and convincing announcement of a peace deal so far. And again, even though markets take this stuff with a grain of salt, there was something a bit different about the comments on Wednesday and on Thursday rather, and there was a broad willingness to react this time. In fact, most of the news that you may already have heard this past weekend was traded into the market at that time. Bond yields and oil prices dropped sharply. Stocks surged. All that remained was to see whether Iran’s response would be no deal. What do I mean by that? Throughout this process, it’s been common for one side to refute the claims made by the other. While some news outlets released snippets that arguably tried to push back on peace deal prospects, that pushback was markedly softer than previous examples. And by Friday morning, we even had Iran’s foreign minister confirming that the two sides had, quote, unquote, “never been closer to signing a memo” that would effectively end the war and begin a more formal peace negotiation. With that, bonds managed to end the week very close to their best levels. And because mortgage rates are, of course, tied to bonds, 30-year fixed rates hit their lowest level in more than a week. The average lender was just zero point zero two percent above the lowest level in four weeks, and that happened on May 29th. The only catch is that the four-week range consists of what are the highest rates over the past ten months, but we have to start somewhere. Heading into the current week, there are now reports that Trump, Vance, and Iran’s Ghalibaf, if that’s how you pronounce it have signed the memo of understanding. That’s a big deal. There’s also a scheduled official signing day on Friday, apparently. I’m not sure if that continues to be a thing, if everybody has signed it before then or if that’s just for a ceremony. In other words, it’s like that stage in the loan process where most of the docs are signed, but where roadblocks could still come up between now and funding. Because of that, the market hasn’t rallied quite as much as we might expect, also because it was priced in quite a bit last week. The other consideration is that the memo is only the first step, and a more formal agreement would be negotiated over two months. Nonetheless, rates and yields are right in line with their lowest levels in about a month. They’ve improved moderately from Friday, and we’ll take it. Wednesday brings the next Fed announcement, as you may have heard, where markets expect effectively no chance of a hike or a cut. That day could still cause some volatility depending on the comments from new Fed Chair Kevin Warsh and the dot plot, of course, which is probably still happening this time, but Warsh may discuss whether they’re going to continue to do that. The week’s only arguable big-ticket economic data, retail sales, will come out earlier that morning. And as a final reminder, markets are closed on Friday for the Juneteenth holiday. That’s all 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.