US President Donald Trump expressed optimism about reaching a trade deal with China amid an ongoing trade conflict. The current tariff rate on Chinese goods stands at 145%.
Trump is open to negotiations and has received over 15 trade offers. He aims to finalise agreements before a 90-day deadline, at which point he will evaluate the situation.
Treasury Monitoring Efforts
Treasury Secretary is monitoring the bond market closely to assess potential impacts on the economy. The outcome of this trade deal may influence future market conditions.
At present, market participants are facing a combination of policy signals and economic data that suggest an increase in price volatility may not be far off. Optimism expressed by Trump regarding a potential deal with China should not be misread as confirmation of progress—rather, markets are reacting to tone rather than substance. The current tariff rate, at 145%, remains one of the highest in recent history and is not expectant of a comprehensive rollback without meaningful concessions.
Negotiations ahead of the 90-day deadline continue to support short-term speculation, with a series of trade offers already submitted. However, no material shift has yet taken place. We are now in a period during which sentiment, rather than structural change, is driving price action intraday. Traders should not chase moves based on headlines unless confirmed by underlying flows or economic output indicators. Waiting for hard commitments in writing may become a more prudent strategy. When policymakers issue statements that affect expectations—even if no legislative change accompanies them—they alter the pricing of risk.
Mnuchin’s focus on the bond market should be watched closely. An adjustment in Treasury yields would alter positioning across leveraged strategies, particularly those employing interest rate futures as hedging tools. Duration exposure and curve positioning must now be examined through the lens of geopolitical uncertainty. If spreads widen unexpectedly, particularly on the long end, this would suggest that market confidence in a deal is eroding faster than previously anticipated. Similarly, if short-end rates begin to climb as a precautionary measure, then traders should reassess balance sheet exposure to short-term funding instruments.
Volatility and Institutional Behavior
It’s also worth noting that short-dated volatility is unusually sensitive to these developments. As we move toward the 90-day window, pricing of protection through options could increase further. Sellers may demand greater premium to offset the knock-on effects of a breakdown should the rhetoric translate into inaction. Conversely, continued delay in clarity may lead to a slow build of implied volatility across both commodities and rate-sensitive currencies. Options traders we’ve spoken to are preparing for wider swings in underlying asset prices within compressed timeframes.
We should also be viewing institutional behaviour through the lens of portfolio insurance. In such environments, protection can quickly become crowded. Bid-offer spreads on derivatives related to emerging markets and industrials have already widened in select venues. While plain-vanilla puts and calls remain available, strategies relying on spreads and ratio structures may encounter lower fill rates or increased slippage. From this, it’s clear that liquidity may only be available when it’s no longer needed by the majority—a problematic setup if sentiment reverses abruptly.
From our internal models, skew is beginning to show signs of diverging between asset classes. This would be consistent with fragmented views over the likelihood of deal closure. Traders who rely on implied volatility surfaces to define entry points should consider whether these premia reflect real risk or mirror nervous profit-taking. We’ve shifted some exposure toward adaptive hedging models as a result, allowing for quicker shifts in bias based on cross-asset cues.
Looking ahead, the timing of these negotiations and their credibility must be factored into all positions with multi-week duration. Leverage should be calibrated accordingly. Rather than chasing nominal moves or reacting to leadership commentary, it may be more practical to let implied signals guide risk units—for example, by examining skew ratios across risk proxy assets. Attention toward market depth and execution costs now becomes more justified than ever.
