Mortgage Rates Today, May 27, 2026: Optimism Over Middle East Sends Rates Moderately Lower

The bigger picture

Mortgage rates fell again yesterday. The Securities Industry and Financial Markets Association (SIFMA) summed up why in a newsletter yesterday:

"U.S. Treasuries climbed across the curve as optimism over a potential US-Iran agreement dampened inflation concerns, even as tensions remain elevated. Easing oil prices and reduced expectations for near-term Federal Reserve tightening supported bonds, though analysts caution any sustained rally will depend on a finalized deal and clearer outlook for energy markets and inflation."

Mortgage rates, which are determined by yields on a type of bond called a mortgage-backed security, often loosely track U.S. Treasury yields. And the rising bond prices that SIFMA mentioned invariably bring lower bond yields. That's a mathematical certainty.

Not everyone is as optimistic about the outcome of the Middle East peace talks. "We think the Strait of Hormuz remains largely closed for months yet, meaning shortages become more urgent and oil hits new highs this summer," said investment bank Piper Sandler in a recent note to clients, quoted by CNBC.

Of course, that worst-case scenario scares us, but we're not as pessimistic about the likelihood of such an outcome.

What's coming up?

Although economic reports are usually the main drivers of changes to mortgage rates, they're not the only ones. The general mood in markets and economically consequential news can also affect those rates. News items concerning the war, employment, inflation, tariffs, and deficit funding are especially influential at the moment.

You might have noticed worrying reports in the financial press about the likelihood of inflation getting worse. For example, in an e-newsletter on May 10, The Economist wrote, "The Iran war is already causing pain for American motorists, who are paying more than $4.50 a gallon for petrol. Now Americans face a grocery-price shock."

On May 11, MarketWatch had similar concerns: "The surge in gasoline prices tied to the Iran war is set to drive U.S. inflation to a three-year high — and it might get worse before it gets better.

" ... That’s not the only downside of higher inflation," the report continued. "The increase in prices has handcuffed the Federal Reserve. The central bank is likely to be stymied from cutting interest rates aggressively, leaving the cost of borrowing painfully high for prospective home buyers and anyone who needs a big loan."

The Fed

April's price indices (the CPI, PPI and IPI ) tend to add weight to these pessimistic arguments. (We're due a fourth April price index on Friday.) And they landed well after the last meeting of the Federal Reserve's rate-setting committee. Minutes of that meeting were published on May 20 and included the following:

"Almost all participants noted that there was a risk that the conflict in the Middle East could persist for an extended period or that, even after the conflict ended, the prices of oil and other commodities could remain elevated for longer than expected. In such scenarios, these participants expected continued upward pressure on inflation arising from supply chain disruptions, high energy prices, or the pass-through of higher input costs to other prices. The vast majority of participants noted an increased risk that inflation would take longer to return to the Committee’s 2 percent objective than they had previously expected."

Bottom line: "A majority of participants highlighted ... that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent." Policy firming is Fedspeak for a rate hike.

Bond markets vs. stock markets

Mortgage rates are largely dictated by yields on a type of bond, the mortgage-backed security (MBS). So, we focus on bond markets.

On May 7, The New York Times explored why stock markets and bond markets have been behaving so differently from each other since the start of the conflict in the Middle East.

Investors in stocks have been wagering that U.S. companies will continue to generate large profits during the conflict. And the stock market typically cares only about whether dividends and company values will continue to rise.

"But the bond market is another matter," said The Times. "Bond traders have maintained a much sharper focus on risk. Yields remain correlated with shifts in the price of oil. As oil prices have spiked and inflation has risen, yields have risen and bond prices, which move in the opposite direction, have fallen."

Comerica Bank's weekly preview

On Monday, Comerica Bank published its weekly preview:

"Inflation as measured by the PCE price index [due Friday] likely rose to around 4% in April as gas prices climbed; the PCE is the Fed’s preferred inflation gauge. April likely delivered more solid gains in personal income and spending, but those gains were largely swallowed by inflation. The core PCE price index was likely little changed, hovering around three and a quarter percent. The Fed has made clear they are unhappy to see it stuck above their 2% target.

"Real GDP growth for the first quarter [also due Friday] is likely to be revised higher in the second estimate, reflecting upward revisions to consumer spending. Inflation in the first quarter also is likely to be revised higher."

Comerica also thought that today's consumer confidence would probably soften just a bit, and that Thursday's durable goods orders for April would rise, mainly on new orders for aircraft.

Comerica's predictions often differ from market expectations, which are a consensus of a wider pool of analysts' forecasts.

Mortgage rates today

There are no economic reports on today's MarketWatch economic calendar. Although three reports are scheduled for tomorrow, they're not ones that typically move mortgage rates much. Seesawing sentiment about the Middle East peace talks is much more likely to affect those rates.