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Inflation doesn’t care about ceasefires: Markets received key inflation and economic growth updates last week as world market monitors U.S/Iranian diplomatic progress under a potential peace framework. Last Thursday, monthly Personal Consumption Expenditures (PCE) inflation arrived a touch below expectations on both a headline and “core” (excluding volatile food and energy) basis. Despite rising slightly less than expected on a monthly basis, the annualized headline figure rose by 3.8%, the highest since May of 2023. This will likely draw further scrutiny from the “majority” of Fed officials, who, from the April FOMC minutes, stated, “some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%.” At a minimum, the latest data reinforces that policy easing (i.e., rate cuts) in the near term is likely on hold, barring improvements in underlying inflation metrics. Separately that day, Q1 GDP growth was revised down to an annualized rate of 1.6% (Prev. 2.0%) in its second reading as consumer spending slipped amid an acceleration in pricing pressures tied to the Middle East conflict. Flare-ups between the U.S. and Iran continue to trickle through news outlets, though Axios reported last Thursday that U.S. and Iranian negotiators reached an agreement on a 60-day “Memorandum of Understanding” to extend the ceasefire and launch negotiations on Iran’s nuclear program. However, while awaiting a formalized approval from the U.S. and Iranian leadership, reports circulated to kick off this week that Iranian diplomats have suspended negotiations. More specifically, Iranian negotiators are poised to “suspend talks and the exchange of documents through mediators,” potentially delaying U.S./Iranian diplomatic progress.

Markets move on hopeful possibilities: In Treasury markets, while diplomatic news was met with cautious optimism last week, ongoing rate movements appear to lack conviction, at least until something material is formalized in recent U.S/Iran diplomatic efforts. Despite the headline activity, the 10-Yr Treasury had the tightest weekly trading range since mid-February, closing the week at 4.435%. Treasury market movements continue to correlate with the price of Brent Crude Oil futures, which also moved higher to $97/barrel at the beginning of this week. The CME FedWatch Tool maintains its positioning of a rate hike as the next directional move for the Fed Funds Rate, though current expectations suggest that no rate hike is coming until later in 2027. Lastly, the prior week’s U.S. Treasury auctions of $69 billion 2-year notes, $70 billion 5-year notes, and $44 billion 7-year notes all came in at or better than expected, suggesting that investor demand for U.S. Treasuries remains healthy despite geopolitical headwinds.

Rate lock volume rebounds: DUS Lender rate lock activity across new issue Fannie Mae DUS/MBS breached over $1.2 billion during last week’s holiday-shortened trading week, presenting the strongest weekly tally in seven weeks. The pickup likely reflected healthy month-end flows to rate lock and seemingly benefited from the drop in Treasury yields – though this rate movement is under pressure to start this week. Rate locks last week included a variety of structures across the spectrum of standard 5-, 7-, and 10-year deals. Traders reported that longer-duration deals, particularly 10 years or longer, continue to draw strong client interest. Additionally, block-sized transactions of $25 million or more have drawn several aggressive client bids from investors, improving overall execution for those deals. Spreads across standard structured 5-, 7- and 10-year Fannie Mae DUS/MBS were unchanged last week, though there was a slight tightening in 12- and 15-year spreads. Traders report that activity in the Ginnie Mae sector remains modest, with generic PL and CL spreads holding steady to slightly wider week-over-week. Corporate credit spreads across the Markit CDX Investment-Grade 5-year Index and the Bloomberg Single-A Industrials 10-year Index were similarly unchanged.

The week ahead: This week, geopolitical developments will remain front and center as markets navigate an apparently stalled negotiation status between the U.S. and Iran. Until something material has been formalized, market participants are likely to continue treating any diplomatic progress with measured skepticism, as has been the pattern throughout the negotiation process. Any incremental updates, positive or negative, on the formalization of the ceasefire framework will continue to drive intraday volatility in both Treasury yields and oil prices.

On the domestic data front, the May U.S. labor market reports will take center stage, with the Nonfarm Payroll and Unemployment Rate figures serving as the week’s key releases. Given that headline PCE inflation already printed at its highest level since May 2023, a strong jobs report could further cement the case for the Fed to hold rates unchanged well into 2027 or, in a more adverse scenario, add credibility to the majority of FOMC officials who flagged the possibility of policy firming if inflation remains persistently above two percent. The Federal Reserve’s Beige Book will also be closely watched for on-the-ground color from regional business contacts on how the conflict-driven inflation and the economic growth environment are filtering through to hiring, wages, and consumer spending. Fed commentary throughout the week will similarly be parsed for any shift in tone relative to the cautious, hold-steady posture officials have maintained in recent weeks, particularly as Fed speakers approach their external communications “backout” period beginning this weekend before the June 16-17 FOMC Meeting.

Economic Calendar: (Week of 06.01.2026 – 06.05.2026):

06/01: Monday

• May Final: S&P Global U.S. Manufacturing PMI (Est. 55.3, Actual 55.1, Prev. 55.3)
• May: ISM Manufacturing (Est. 53.0, Actual 54.0, Prev. 52.7)

06/02: Tuesday

• Apr: JOLTS Job Openings (Est. 6,866K, Prev. 6,866K)

06/03: Wednesday

• May: ADP Employment Change (Est. 120K, Prev. 109K)
• May Final: S&P Global U.S. Services PMI (Est. 50.9, Prev. 50.9)
• May: ISM Services Index (Est. 53.8, Prev. 53.6)
• April Final: Durable Goods Orders (Est. 7.9%, Prev. 7.9%)
• Fed Beige Book

06/04: Thursday

• Week of May 30^th: Initial Jobless Claims (Est. 214K, Prev. 215K)
• Week of May 23^rd: Continuing Claims (Est. 1780K, Prev. 1,786K)

06/05: Friday

• May: Change in Nonfarm Payrolls (Est. 85K, Prev. 115K)
• May: Unemployment Rate (Est. 4.3%, Prev. 4.3%)