Tensions between the United States and China continue, with both leaders, Trump and Xi, displaying reluctance to initiate contact.
China’s president is preparing for an overseas tour in mid-April, which may further delay any potential conversation.
Bond Market Pressures
Current circumstances imply that the initiative to engage rests with Trump, as the bond market faces various pressures.
Without prompt communication, uncertainty may reign in international markets.
While recent diplomatic hesitations persist, the lack of dialogue has already begun influencing broader financial metrics, particularly those tethered to interest rate expectations and duration risk. Treasury yields have responded with sporadic swings, while implied volatility in options markets has expanded, reflecting reduced clarity on trade policy trajectory.
These developments suggest one clear message: price discovery in rate-sensitive instruments is weakening, not due to domestic indicators, but because of external silence. The longer this vacuum continues, the more traders will lean heavier on technical levels and sentiment-driven flows, reducing the influence of traditional macro inputs.
Impact on Swaps Markets
Bond dealers, facing illiquid sessions, have been forced into shorter time horizons in their positioning. The pricing of risk is no longer being shaped by economic releases alone, but rather by assumptions about headline risks and political temperaments. The reluctance to engage diplomatically may well stretch this pattern of ambiguity into the next few weeks.
Taking this into account, we are opting to reassess delta exposure in longer-dated options. The uncertain timeline, with overseas travel commitments delaying any breakthrough, adds another layer to already disoriented markets. Since no immediate clarification is expected, this behaviour must be anticipated to continue pressuring correlation assumptions.
In swaps markets, we’re seeing more pronounced skews favouring protection over carry—an indication that players are preparing for unexpected protocol or tariff announcements rather than trusting smooth policy shifts. It’s not risk-off, as much as it is risk-unknown.
There is now limited merit in expecting reversion to calmer liquidity. Instead, there’s merit in observing the inflection points where volume and price-action disconnect, particularly in the tighter spreads of front-runners on exchange-traded derivatives. In short, caution isn’t about sentiment—it’s about mechanics.
We’re reweighting exposures with close attention to volatility curves and gamma responses. Directional views count for less than the responsiveness of hedging structures. The initiative, or lack thereof, from policymakers has already shaped what the markets are preparing for. Price action is reflecting this.
One should be acting in layers, not in blocks. Initial reads might misprice future signals, and we’ve noted that short-tenor instruments are reacting more forcefully to tiny cues. The message sits not in outcomes, but in the broader acceptance that events may shift abruptly.
In quiet weeks, positioning as if clarity is around the corner has cost too much. Better to structure for turbulence than to await confirmation that may never come.
