The bond market continues to hold the line for now

The low yesterday touched 4.46% and we’re roughly 10 bps above that now as the storm settles down. Trump has delayed the 25% tariffs on Canada and Mexico by a month but the additional 10% tariffs on China has now officially took effect.

China has replied with their own counter-tariffs here. But all in all, it’s still not quite the 60% tariffs he was campaigning against China in the months before. If anything, it’s just an opening salvo to get try and get China to the negotiating table with Trump also trying to play the TikTok hand in all of this.

Going back to the bond market, safety flows were evident in trading yesterday. But as tariff fears ebbed, yields also nudged back higher during the day. And most importantly, the neckline around 4.50% is still holding for now at least.

We could be starting to see a head and shoulders pattern emerging and that will certainly be of much interest to the technical traders out there.

The only issue now is that headline risks are taking top priority. So, it’s a case of taking things day by day and seeing what may come up next.

In the bigger picture though, there’s a balance to be struck.

Trade wars are never a good thing as they threaten to stir up inflation and considering Trump’s threats, impacted governments may look to increase spending to counteract the tariffs. Typically, that will mean yields moving higher but that will be offset by safety flows and risk-off moves in general. So, traders have to figure out which side of the coin that they’ll be wanting to take in all of this.

For now, the tariff threats have subsided somewhat with the can being kicked down the road. However, the tariffs debate will continue to rage on in the next few weeks – that especially with the EU and China also in the crosshairs.

And at some point, I reckon that debate among bond traders will have to be settled by the technical neckline of 4.50% as seen above.

This article was written by Justin Low at www.forexlive.com.