US-China Trade Talks Outcome: Treasurys and Money Markets on Edge

Markets hold their breath as superpower negotiations enter make-or-break phase.

Will the yield curve flinch?

Traders are glued to screens—not that they have a choice—as Beijing and Washington play economic chicken. Safe-haven flows could reverse faster than a crypto whale dumping altcoins if tariffs get the axe.

Meanwhile, money market desks are running scenarios like over-caffeinated quants. Because nothing says ''stable'' like instruments that repriced 300bps during last year''s banking crisis.

Pro tip: When central bankers and trade ministers collide, grab popcorn—or hedge your portfolio. Probably both.

Currency traders hold off as inflation and bond auction loom

The dollar did basically nothing. It dropped 0.1% against the euro at $1.1438, and ROSE 0.1% versus the yen, landing at 144.93. The U.S. dollar index, which measures the greenback against six major currencies, didn’t budge from 98.993.

China’s yuan barely twitched, holding at 7.1849 per dollar in onshore trading. None of the big FX pairs moved enough to tell any story. That’s how little impact the London meeting had.

Economists warned that even if Washington and China managed to avoid another round of open conflict, the tariffs that could result from this “deal” are likely to be worse than what was in place last year.

And the data that’s currently available doesn’t even show the full damage from the last few rounds of threats and walk-backs. There’s more pain hiding in the pipeline.

In the UK, traders are waiting on a spending review that could change the budget picture for the next decade. Finance Minister Rachel Reeves is getting ready to allocate over £2 trillion (around $2.7 trillion) across departments from 2026 to 2029, with extra investment plans through 2030.

The British pound stayed flat at $1.349, while gilt yields rose fast—up 7 basis points to 4.598%, compared to a 1 basis point rise in the U.S. 10-year Treasury, which reached 4.49%.

Fed expected to pause again as investors eye inflation print

The Federal Reserve is widely expected to hold interest rates steady at its next meeting. A poll by Reuters showed most analysts don’t expect the central bank to make any changes until September. Bond traders aren’t betting on July either. The mood is wait-and-see.

Gold ticked up, but just slightly. Spot Gold gained 0.4%, trading at $3,336.20 an ounce as of 09:46 GMT, while U.S. gold futures hit $3,347. That’s not a huge move, but it shows traders are still hedging against whatever might come from inflation or central bank action.

One major event markets are bracing for is a $39 billion auction of 10-year Treasury notes later in the day. With so many concerns about the U.S. deficit and rising government debt, investors are demanding higher premiums for long-term bonds. Foreign demand is especially critical now, and if it doesn’t show up, yields could shoot higher fast.

Right now, the 10-year Treasury yield is up by 2 basis points at 4.494%. The 2-year yield has surged 1.5 basis points to trade at 4.027%, and the 30-year yield climbed 2 basis points to 4.377%.

The next big test is the U.S. CPI data for May, which could show the early effects of tariffs on consumer prices. The median forecast puts headline inflation up 0.2% and Core inflation up 0.3%.

That WOULD push annual inflation to 2.5% and 2.9%, respectively. But anything hotter than that would kill off any lingering hope for a rate cut, and could trigger a sharp bond selloff.

So far, markets aren’t betting on a cut in June or July, and current pricing shows about a 60% chance of a September move. But with trade policy still in limbo and inflation data still unknown, nobody’s taking big positions.

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