Trade war tensions ease as markets watch bond yields and dollar moves 

While tensions between the U.S. and China remain high, recent actions by the Trump administration suggest the possibility of an eventual de-escalation. Though one should acknowledge that trade relations could worsen before improving, the situation has reached a point where further escalation risks becoming economically irrational between both countries. 

Trade war hits a limit 

Last week’s decision to delay tariffs on selected Chinese imports by 90 days, alongside the ongoing tit-for-tat retaliations, marks a critical moment in trade relations between the U.S. and China. The recent announcement by President Trump to exempt key tech products such as computers, phones, and chips from additional tariffs, is a welcomed development. 

This move notably benefits major companies like Apple, which relies heavily on Chinese production for its inputs. Ironically, this comes after Trump previously announced that Apple would make one of the largest investments in U.S. history. New tariffs would have severely impacted on the company’s margins, making this exemption a strategic relief. 

While these steps don’t resolve the conflict, they ease tensions and might signal the beginning of negotiation talks. 

The moment where bond yields and the dollar matter a lot 

Beyond trade headlines, a more significant market concern has emerged: movements in U.S. 10-year treasury yields and the U.S. dollar. Initially, when tariffs were announced, bond markets reacted as expected, with a risk-off sentiment pushing yields lower (higher bond prices). However, China’s tariff retaliation brought a surprising reaction: 10-year yields widened instead of tightening. 

This can be interpreted as a sophisticated, indirect response by China, possibly selling U.S. treasuries to apply financial pressure on the U.S. economy. This sell-off likely triggered additional sales from other countries, exacerbating the situation. Rising yields (lower bond prices) translate into higher interest rates, making financing conditions uneasy. 

The volatility in yields and the weakening dollar is likely a key reason behind Trump’s recent softening stance on trade. Should bond market pressures intensify, an intervening by the Federal Reserve shouldn’t be ruled out, a move that could act as a positive market catalyst. 

Opportunities emerging amid volatility 

While unpredictability remains, there remains optimism that the trade conflict will find a resolution in some form. Encouragingly, technical indicators over the past  trading sessions show signs of stabilization. The recent market sell-off has also presented investors with compelling entry points not seen in over a year. 

As the volatility situation evolves, investors should remain alert to both technical and macroeconomic shifts, while watching for signs of opportunities and taking calculated risks. 

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