Markets experienced notable volatility last Friday as US Treasury yields rose sharply in response to new trade tariff announcements. The US government informed several countries, including Mexico and Canada, that they would face reciprocal tariff rates of 30% and 35%, respectively, unless they secure trade agreements by August 1. This move marked a significant shift from previous exemptions and heightened market tensions.
On the same day, the yield on US Treasuries saw an increase of 1.4 basis points for the two-year note and as much as 8 basis points for the 30-year bond, which is now hovering at 4.97%, perilously close to the psychological 5% threshold. The highest yield observed this year is 5.15%. The current economic climate has raised concerns about stagflation, with investors closely watching the upcoming US inflation figures for June, due for release shortly. A surprise increase in inflation could further influence market dynamics.
The sell-off in US Treasuries contrasted with the performance of US stock markets, which experienced a minor correction ranging from 0.2% to 0.6%. Meanwhile, the trade-weighted dollar continued its modest recovery this month. Analysts caution against overinterpreting these trends, noting that anti-US sentiment could re-emerge quickly, particularly with equity markets appearing more vulnerable than the dollar due to dovish Federal Reserve positioning and rising inflation risks.
Impact of Tariffs on Global Trade Relations
In addition to the tariffs imposed on North America, the US has also informed the European Union that the tariff level will be set at 30%, an increase from the previously announced 20%. Negotiations remain ongoing, with the EU initially responding by pulling back from retaliation plans. However, the EU is concurrently strengthening ties with other nations affected by US tariffs, aiming to deepen existing trade agreements.
As global bond markets react to these developments, the Japanese 30-year bond yield increased by 10 basis points, approaching its year-to-date high of 3.2%. The potential for simultaneous sell-offs in both bonds and stock markets looms, particularly given the limited time frame before the new tariffs take effect.
Economic Outlook in the UK and Bulgaria
Amid these global developments, both Fitch and S&P upgraded Bulgaria’s credit rating from BBB to BBB+, citing the country’s recent approval to adopt the euro by January 1, 2026. This upgrade is expected to strengthen Bulgaria’s monetary policy framework and reduce transaction costs. Despite an anticipated increase in the debt-to-GDP ratio from 24.1% in 2024 to 34.7% in 2029, Bulgaria maintains a favorable position relative to its peers in the BBB category.
In the UK, a recent survey conducted by KPMG and the REC indicated a decline in hiring activity for June, marking the fastest drop in permanent placements in 22 months. Companies are reportedly feeling the strain of budget constraints and a reduction in overall vacancies, with temporary billings also experiencing a significant decline. Despite these challenges, some analysts remain cautiously optimistic about the outlook, suggesting that clear government commitments could restore confidence in the hiring landscape.
As global markets brace for key economic data and navigate the complexities of international trade, the interplay of inflation, tariffs, and hiring trends will be critical in shaping future financial landscapes.
