U.S. Treasury Yields Decline as U.S.-EU Trade Talks Show Progress

Bond Yields Retreat Amid Easing Trade Tensions

U.S. Treasury yields fell on Tuesday, May 27, 2025, following positive developments in trade negotiations between the United States and the European Union. The decline comes after a period of heightened yields driven by fears of escalating tariffs since their imposition on April 2, 2025. The 10-year Treasury yield dropped to 4.431% from the previous day’s close of 4.518%, with intraday trading ranging from a high of 4.513% to a low of 4.430%.

Trump’s Tariff Threats and Reprieve

Last Friday, U.S. President Donald Trump proposed a 50% tariff on all EU imports, stating on social media that trade talks were yielding “no results” and setting a June 1, 2025, deadline for implementation. However, Monday’s news of Trump’s approval to extend a 50% tariff reduction on European goods until July 9, 2025, alleviated market concerns. This extension, prompted by European Commission President Ursula von der Leyen’s request, reduced fears of immediate trade disruptions.

Market Dynamics and Inflation Expectations

The retreat in Treasury yields reflects a decline in inflation expectations, which had been fueled by tariff-related concerns. As trade tensions eased, the market’s anticipation of higher inflation subsided, contributing to the downward pressure on yields. Sovereign bonds, sensitive to inflation forecasts, benefited from the de-escalation, reinforcing the inverse relationship between bond prices and yields.

The market’s response underscores the significant impact of U.S.-EU trade developments on global financial conditions.