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A landmark US-UK trade agreement, unveiled on May 8, 2025, sparked a surge in US Treasury yields and renewed optimism for global economic growth, despite lingering tariff uncertainties. The deal, announced by President Donald Trump during a call with UK Prime Minister Keir Starmer, sets a 10% tariff baseline on UK exports to the US while easing barriers for key goods, signaling a thaw in trade tensions. As markets embraced the news, Treasury yields climbed, reflecting confidence in a brighter economic outlook. This report explores the trade pact’s details, its impact on yields, and the broader implications for global markets.
The US-UK trade agreement, a cornerstone of Trump’s trade agenda, promises to deepen economic ties by facilitating greater access to American beef, ethanol, chemicals, and machinery in the UK market. Trump highlighted the UK’s commitment to removing non-tariff barriers, ensuring smoother trade flows, with final details to be ironed out in the coming weeks. The White House confirmed a minimum 10% tariff on UK exports to the US, generating $6 billion in revenue and $5 billion in export opportunities, while aligning the UK with US economic security goals through an aluminum and steel trading zone and a secure pharmaceutical supply chain. The announcement lifted market sentiment, with the Dow Jones gaining 1.6% to 41,113 and the S&P 500 up 0.2% to 5,617, as investors bet on a global growth rebound.
US Treasury yields reacted swiftly to the trade optimism, with the 10-year note yield rising 11 basis points to 4.390% and the 2-year yield climbing 10 basis points to 3.893%. This uptick reflects an inverse relationship between bond prices and yields, as investors sold off Treasuries amid a growing risk-on mood, fueled by confidence in the US-UK deal’s potential to spur economic activity. The Federal Reserve’s recent decision to hold rates at 4.25%-4.50%, coupled with a solid labor market (April’s 177,000 Nonfarm Payrolls, 4.2% unemployment), further supported the yield increase, though upcoming central bank commentary on May 9 will provide more clarity on monetary policy direction.
The trade deal’s ripple effects extended beyond US markets, with Trump noting China’s “strong desire” to strike a similar agreement. Ahead of US-China talks on May 10-11 in Switzerland, aimed at addressing tariffs capped at 145%, the prospect of broader trade détente added to the bullish sentiment. However, gold prices fell to $3,311, down 1.60%, as risk appetite grew, while the US Dollar strengthened to 100.71 on the DXY, pressuring safe-haven assets. The Pound Sterling edged up 0.15% to 1.3300, buoyed by the trade pact, though the 10% tariff tempered gains. With upcoming PMI data and trade talk outcomes on the horizon, the US-UK deal has set a hopeful tone, but tariff risks and Fed policy remain key variables for global markets.
