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The US two-year yield fell by as much as three basis points to 3.85% as trading resumed following Friday's US public holiday, while the 10-year yield rose one basis point to 4.36%. The dollar rose against most major peers.
Traders are hoping that the week will finally bring some clarity on where trade tariffs will settle, with only a handful of countries including the UK striking deals so far. The 90 day period of universally lower tariffs is set to expire on Wednesday and Trump has indicated that the US will send letters from today informing various countries of unilateral tariff rates.
'Uncertainty has increased ahead of July 9 trade deal deadline as investors are starting to gradually price in the risk that President Trump could once again escalate global trade tensions and thus deal a blow to the global economic outlook,' said Valentin Marinov, head of G10 FX research and strategy at Credit Agricole.
Trump has said trading partners can expect a rate anywhere between 10% and 70% — implying some may have to shoulder higher tariffs than expected — though he suggested some deals are in the offing, too. Adding to the uncertainty, Treasury Secretary Scott Bessent indicated some countries lacking an agreement by Wednesday's deadline will have the option of a three-week extension to negotiate.
The dollar, which has often previously fallen on tariff concerns, was stronger against most major global partners on Monday. The Bloomberg Dollar Spot Index rose as much as 0.5%, though remains near its lowest levels since early 2022 after sliding almost 11% this year.
'We have a truce with China, and for the rest, it is a question of whether last-minute deals are struck, whether tariffs are substantially increased or whether fresh extensions are announced. All seem possible,' said Chris Turner, head of FX strategy at ING.
The US two-year yield, though modestly lower on Monday, remained more than 10 basis points higher than a week ago. Stronger-than-expected payrolls data last week implied the Federal Reserve can hold interest-rates for longer, sending yields surging.
Money markets are only fully pricing the next interest rate cut — which would be the first this year — by October. Federal Reserve meeting minutes from June, due to be published Wednesday, will offer further insight into officials' stance on the inflationary and growth outlooks.
Longer-dated Treasuries are expected to remain under pressure after Trump's 'One Big Beautiful Bill' was signed into law last week. The bill, the centerpiece of the President's second-term agenda, extends 2017 tax cuts and will add an estimated $3.4 trillion to US deficits over the next decade.
Vincent Mortier, chief investment officer at Amundi SA, one of Europe's largest asset managers, said the bill's detrimental impact on the US fiscal deficit matters more than tariffs, the cost of which 'will be borne by many players'.
'The sustainability of the US debt trajectory will start to be questioned,' he said in an interview with Bloomberg TV on Monday. 'More and more investors will try to hedge or to diversify away — slowly but surely — from the US dollar.' The firm is bearish on the greenback.
--With assistance from Naomi Tajitsu.
(Updates pricing, adds analyst comment in paragraph four.)
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