Global trade sentiment is on the rise as a new US-EU agreement paves the way for optimism, signaling potential progress in ongoing US-China trade talks and influencing U.S. Treasury yields.
Market sentiment has received a significant boost this week following a landmark trade agreement between the United States and the European Union, which in turn is fueling optimism for a potential extension of the US-China trade truce. This ripple effect is already being observed in the U.S. Treasury market, where yields have seen a modest decline.
On Sunday, President Donald Trump announced a framework trade deal with European Commission President Ursula von der Leyen, establishing a 15% tariff on EU imports into the U.S. This rate is notably lower than the 30% tariffs many markets had braced for, providing a sense of relief and signaling a move towards de-escalation in global trade tensions. This positive development has renewed prospects for progress in the long-running US-China trade discussions.
Following the US-EU agreement, U.S. Treasury yields experienced a slight dip. The 10-year Treasury yield declined approximately 2 basis points to trade at 4.372%, according to Tradeweb data. While the fall was limited due to caution ahead of the Federal Reserve’s decision on Wednesday and a raft of upcoming U.S. economic data, including Friday’s nonfarm payrolls figures, the market’s initial reaction underscores the positive impact of reduced trade uncertainty.
The Federal Reserve is widely expected to keep interest rates on hold during its upcoming meeting. Currently, the target federal funds rate stands at 4.25%–4.50%. However, the long-term outlook for U.S. Treasury yields remains a topic of keen interest, with the 10-year Treasury yield forecast to hover around 4.42% in the near term before potentially easing to 4.30% by year-end 2025.
The focus now shifts to Stockholm, where top officials from the U.S. and China are commencing a fresh round of trade talks today. Led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, these meetings are stirring considerable speculation about a 90-day extension to their current trade truce, which is set to expire on August 12.
Sources familiar with the matter, cited by the Hong Kong-based South China Morning Post, indicate a strong likelihood of this extension. If realized, this would mean both nations agreeing not to introduce new tariffs or take further escalatory actions during the 90-day period. This follows earlier discussions in Geneva and London that primarily focused on de-escalation, bringing initial triple-digit tariffs down to current levels of 30% for US duties on Chinese goods and 10% for China’s countermeasures.
Treasury Secretary Bessent himself indicated last week that talks with China were in “a very good place” and that a second truce was a distinct possibility. Furthermore, it is reported that the U.S. has frozen restrictions on technology exports to China, particularly chips used for artificial intelligence (AI), to avoid derailing the ongoing trade talks and to facilitate a potential meeting between President Trump and Chinese President Xi Jinping later this year.
The latest round of US-China talks comes on the heels of Washington striking trade deals not only with the EU but also with Japan, the UK, Indonesia, and Vietnam in recent weeks. Japan’s agreement includes a commitment to invest $550 billion (£407 billion) in the U.S., with its goods facing a 15% tariff upon reaching the country, a significant reduction from the 25% previously threatened. Britain, notably, has negotiated the lowest U.S. tariff rate so far at 10%.
While a major breakthrough in the structural economic disputes between the U.S. and China isn’t widely anticipated from this week’s Stockholm meetings, an extension of the tariff pause would be a welcome sign of continued dialogue and stability for global trade.
Beyond trade, markets will closely watch key U.S. economic data this week. The monthly nonfarm payrolls figures, due on Friday, August 1st, are particularly significant. In June 2025, nonfarm payrolls rose by 147,000, exceeding forecasts of 110,000. Economists are projecting continued job growth for July, with current forecasts for nonfarm payrolls around 108,000 to 110,000, though some models suggest a higher figure around 147,000. The unemployment rate is also closely monitored, having stood at 4.1% in June 2025.
The confluence of these trade developments and upcoming economic releases will undoubtedly shape market sentiment in the days and weeks to come. The treasury sector, in particular, will be attuned to how these factors influence yield curves and investor confidence.