U.S. mortgage rates have surged to 6.37% for 30-year fixed mortgages, marking the second consecutive weekly increase as global tensions and the Iran war create market panic. According to Freddie Mac, this represents a 0.07 percentage point rise from 6.3% last week, with the 15-year fixed mortgage rate climbing to 5.72% from 5.64%. The current rates are significantly higher than 6.76% for 30-year mortgages and 5.89% for 15-year mortgages one year ago. Mortgage applications for new homes fell 4% in one week as rates touched their highest levels in a month, according to the Mortgage Bankers Association. As Hannah Jones, senior economic research analyst at Realtor.com, noted, the latest Middle East tensions reminded markets that lower rates depend heavily on stability in the Persian Gulf region. Higher mortgage rates can add hundreds of dollars to monthly home payments, making homes less affordable for buyers during the normally busy spring homebuying season.
The U.S. Federal Reserve is expected to keep its benchmark interest rate unchanged in the current range of 3.50% to 3.75% when it meets on Wednesday, as markets weigh the impact of the ongoing Iran war on monetary policy. According to OANDA, traders are concerned that a surge in crude oil prices following US-Israeli strikes on Iran would revive inflationary pressures and force the US central bank to delay cutting interest rates. The Federal Reserve left its benchmark interest rate unchanged for the third time in a row, with four dissenting votes on Wednesday representing the most at a Fed meeting since 1992. Three officials on the Fed's policy committee wanted to drop language from the post-meeting statement that suggests a bias toward easing, while another official would have supported a rate cut. Fed Chair Jerome Powell's press conference on Wednesday may be his second to last, as his term as chair is set to end in May, with any hawkish comments from Fed officials potentially lifting the Greenback and acting as a headwind for currency pairs.
Central banks worldwide have adopted a cautious stance amid rising oil prices and inflation concerns. The Federal Reserve and European central banks elected to keep interest rates on pause this week, as oil prices raise inflation risks. Brent crude futures have pushed higher, briefly rising to about $126 per barrel during Thursday's trading session, amid an ongoing blockade of Iranian ports. The Federal Reserve targets a core inflation rate of 2%, with data showing core inflation at 3.2% in March, even before the Iran war disruptions. The Bank of England and European Central Bank also left its policy rates unchanged in separate decisions on Thursday, with the BOE noting that the oil shock threatens to feed inflation while weakening economic activity.
Despite their name, inflation-linked bonds have struggled alongside the broader bond market during the Iran war. According to Jonathan Hill, head of U.S. inflation strategy at Barclays, "If you think that it's a pure inflation hedge, then you're going to be disappointed." The basic premise of index-linked bonds is that investors' purchasing power is protected as payments are linked to inflation indices, but in the shorter term, when markets expect central banks to hike interest rates, all bonds suffer. As Hill explained, "If inflation goes up, but real yields go up as well, then the duration side of the bond sells off the same as all bonds." The Federal Reserve targets a core inflation rate of 2%, with data showing core inflation at 3.2% in March, even before the Iran war disruptions.
Since the Iran conflict began at the end of February, BlackRock's London-listed global inflation-linked government bond ETF has fallen around 2%, according to LSEG data. This decline aligns with the firm's global government bond ETF performance, while the S&P 500 share index has rallied 7% to hit record highs this week. As reported by The Hindu BusinessLine, this performance gap highlights the current market preference for equities over traditional bond investments. The 10-year Treasury note yield rose quickly when the Iran war began, with mortgage rates following suit, but recent developments show mortgage rates have taken a substantial dive as markets react to potential war end scenarios. U.S. GDP expanded at a 2% annualized rate in the first quarter, compared with 0.5% in the fourth quarter of 2025, demonstrating durable economic growth despite geopolitical tensions. NZD/USD has softened to near 0.5820 in Tuesday's early European session as traders weigh Iran war developments and upcoming Fed policy decisions.
The Iran war has significantly accelerated inflation pressures across major economies. The personal consumption expenditures (PCE) price index rose 3.5% year-over-year in March, up from 2.8% a month earlier and the highest mark in nearly three years, according to the U.S. Commerce Department. Excluding food and energy, core PCE inflation was up 3.2%. The International Monetary Fund warned that a prolonged conflict would test economic resilience, as the oil shock threatens to feed inflation while weakening economic activity. U.S. inflation rose to 3.3% in March as energy prices surged in response to the Iran war, from 2.4% in February, with British inflation also climbing to 3.3% in March. The Bank of England and European Central Bank also left its policy rates unchanged in separate decisions on Thursday, with the BOE noting that the oil shock threatens to feed inflation while weakening economic activity.
