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Trump’s tariffs boost interest in German, Japanese bonds

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With investors seeking safe havens for investment for the first time in years, US Treasury bonds face serious competition from global funds.

The yields on benchmark 10-year Treasury bonds had fallen by approximately 40 basis points this year. With US President Donald Trump’s barrage of tariffs, which are thought to increase the risk of recession, they briefly fell below 4% on Monday.

According to Bloomberg, similar rates have risen in both Europe and Japan. In Germany, the 10-year bond rose to 2.61%, reflecting expectations that bond issuance will increase as the government increases defense spending.

Meanwhile, the rate on 10-year Japanese bonds has also risen after years around zero, and is currently around 1.25% as investors prepare for tighter monetary policy.

While both are still well below US bond yields, they are at levels that make them appear more attractive than Treasury bonds for European and Japanese investors who are protected from dollar risk when buying US securities.

This may convince investors to shift to their own markets, where the policy outlook is more stable.

“The idea that the administration’s various policies could undermine foreign demand for Treasury bonds is gaining traction,” said Matthew Raskin, head of US interest rates research at Deutsche Bank.

Deutsche Bank also warned of a “confidence crisis” in the dollar, while UBS Group believes the euro would get a “shot in the arm” in its status as a global reserve currency.

On the other hand, some believe this change should be viewed with skepticism. The German government bond, Bund, looked similarly attractive in mid-2023, but an aggressive sell-off in Treasury bonds pushed 10-year US yields to 5%, eroding Europe’s yield advantage.

If tariffs revive inflation, this could push US yields higher again.

But according to Bloomberg, even the discussion of such a shift in flows shows that investors are preparing for Europe to play a bigger role in global markets as competition for capital intensifies.

This could lead to greater fragility in the US Treasury market, which has been under attack from buyers in recent years amid concerns that supply could increase.

One of the early tests will take place on Tuesday, when the US government sells $58 billion of three-year bonds, followed by the sale of 10- and 30-year bonds later this week.

Traditionally, the US budget deficit has been financed in part by a wave of capital flowing into Treasury bonds from around the world.

According to Barclays’ analysis of fund flow data, foreign ownership of US Treasury bonds accounts for about a third of the market, and the foreign sector was the largest source of US bond demand last year.

This reflected net purchases of $910 billion, about half of which were in Treasury bonds.

According to US government data, the vast majority of foreign Treasury assets are in longer maturities. Ales Koutny, international interest rates manager at Vanguard, said this means that as foreign demand decreases, it could steepen the US yield curve, meaning long-term rates will rise relative to short-term rates.

An early indication of how investors are navigating global yield shifts may emerge in a few days. The new fiscal year has just begun in Japan, and this is a period when companies there typically review their allocation strategies.

Japan is a key player in global bond markets due to the Bank of Japan’s decades-long ultra-low interest rate policy, which has pushed investors to seek yield.

Germany initiated the change in early March, announcing plans to allocate hundreds of billions of euros for defense and infrastructure. Bund yields rose as investors priced in bond issuance to cover the spending.

The European Union’s large pool of savings surplus means it is the largest foreign holder of US public debt, while also playing a large role in US corporate finance.

If European countries meaningfully increase their investments, these savings could be kept at home.

Diplomacy

Putin proposes direct talks with Kyiv in Istanbul for May 15  

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Russian President Vladimir Putin, in a late-night statement on May 11, indicated readiness for “direct talks” with Kyiv in Istanbul on Thursday, May 15.

In his nighttime speech summarizing international events for the 80th anniversary of Victory Day, Putin stated that the aim of restarting direct dialogue with Ukraine is to “eliminate the fundamental causes of the conflict” and “establish a long-term, lasting peace.”

Putin said, “We propose to restart direct talks with the Kyiv administration without delay this Thursday, May 15, in Istanbul.”

Moscow had previously stated it could consider a ceasefire agreement under certain conditions, including a complete halt to Western military aid to Ukraine.

Initial Western reactions to Putin’s offer of direct talks have arrived. US President Donald Trump, in a statement on his social media platform Truth Social, welcomed Vladimir Putin’s initiative for direct talks, saying, “This is probably a great day for Russia and Ukraine,” and announced that a “great week” would begin.

French President Emmanuel Macron described Putin’s offer as “a first step, but not enough.” Macron stated he believed Russia was “looking for a way out but still wants to buy time.”

On Saturday, the leaders of France, Britain, Germany, and Poland announced that their ceasefire proposals, effective from Monday, were supported by Trump, whom they had informed by phone the same day.

As a gesture of “solidarity” with Ukraine, the four European leaders threatened to increase sanctions pressure on Russian President Putin if their proposals were rejected. The Kyiv visit by the four leaders was their first joint trip to Ukraine and the first official visit for Friedrich Merz as the new German Chancellor.

Last month, prior to the Victory Day parade in Moscow, Putin had declared a unilateral temporary ceasefire from midnight on May 8 to midnight on May 11.

It was reported that fighting did not stop despite Moscow’s three-day unilateral ceasefire. Kyiv and Moscow exchanged mutual accusations. Ukrainian Foreign Minister Andriy Sybiha, in a statement on the X social media network, described the ceasefire as “absurdity,” asserting that Russia continued its attacks on Ukrainian civilians and its assaults on the front line in Ukraine.

However, Putin, in his nighttime speech, accused Ukraine of escalating attacks against Russia in the days preceding the Victory Day “ceasefire” and of repeatedly violating the three-day ceasefire, including five cross-border attack attempts on the Kursk and Belgorod oblasts. Putin stated that these attacks had “no military significance.”

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End of an era: PKK disbands, ceases armed struggle in Türkiye

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The Kurdistan Workers’ Party (PKK), following a congress convened in response to a call by Devlet Bahceli, has announced its dissolution. In the organization’s declaration, which stated, “activities conducted under the name of PKK have been terminated,” criticisms were leveled against the Treaty of Lausanne and the 1924 Constitution, and a call was made for the restructuring of Kurdish-Turkish relations.

The PKK declared at its 12th Congress that it had resolved to dissolve its organizational structure and cease its armed struggle. This decision came after a call from the organization’s founder, Abdullah Ocalan, and is being regarded as the dawn of a new era in Türkiye.

Between May 5-7, 2025, during its 12th Congress held in northern Iraq, the PKK decided to dissolve its organizational structure and terminate its armed struggle. The declaration announcing the congress’s decisions, published by the organization’s news outlet, Firat News Agency, stated: “The 12th PKK Congress, with the practical implementation process to be managed and executed by Leader Apo, has decided to dissolve the organizational structure of the PKK and end the method of armed struggle, thereby terminating activities conducted under the name of PKK.”

Notably, the decision to disband was confined to the Kurdistan Communities Union’s (KCK) Turkish branch, the PKK. The KCK framework includes armed and political extensions such as the PKK in Türkiye, the YPG/YPJ in Syria, KCK-Bakur and HPG in Iraq, and PJAK in Iran.

The process began with Bahceli’s call

The PKK’s dissolution process commenced after Nationalist Movement Party (MHP) leader Devlet Bahceli’s appeal to Ocalan last October. On October 22, Bahceli urged Ocalan, stating: “Türkiye does not need a new solution process but rather to engage common sense, take honest and sincere steps, and further strengthen a thousand-year brotherhood. Türkiye’s problem is not the Kurds but the separatist terrorist organization. It is imperative to individually resolve the issues of my Kurdish brothers… I also address those who claim nothing will happen unless the terrorist leader is involved. If the terrorist leader’s isolation is lifted, let him come and speak at the DEM Party group meeting in the Turkish Grand National Assembly. Let him proclaim that terrorism has completely ended and the organization has been abolished.”

Responding to Bahceli’s remarks, Ocalan, in a statement from prison on February 27, indicated that the organization should renounce armed struggle and pivot towards democratic politics. The PKK convened its congress and approved the dissolution in response to this call.

Emphasis on Lausanne and the 1924 Constitution

The PKK’s dissolution declaration drew attention for its references to the Treaty of Lausanne and the 1924 Constitution, and its inclusion of the word “genocide.”

The text asserted: “Our party, the PKK, emerged on the historical stage as our people’s freedom movement against the Kurdish denial and annihilation policy originating from the Treaty of Lausanne and the 1924 Constitution.” It further stated, “The PKK was shaped under conditions where strict Kurdish denial, the annihilation policy based on it, and policies of genocide and assimilation were dominant.”

‘Restructuring Kurdish-Turkish relations is inevitable’

The declaration argued that amidst the conditions of a “3rd World War,” a restructuring of Turkish-Kurdish relations is necessary: “Leader Apo adopted the perspective of a Democratic Republic of Türkiye, where the Common Homeland and Kurdish-Turkish peoples are constituent elements, and the Democratic Nation understanding as the framework for resolving the Kurdish issue, referencing the period before the Treaty of Lausanne and the 1924 Constitution when Kurdish-Turkish relations became problematic. Kurdish rebellions throughout the history of the Republic, the 1000-year historical dialectic of Kurdish-Turkish relations, and the 52-year leadership struggle have demonstrated that the Kurdish issue can only be beneficially resolved on the basis of a Common Homeland and Equal Citizenship. Current developments in the Middle East within the scope of the 3rd World War also render the restructuring of Kurdish-Turkish relations inevitable.”

Call to the Turkish Grand National Assembly

The PKK’s declaration emphasized that the organization has fulfilled its historical mission and that the Kurdish issue should be resolved through democratic politics. It stated: “The implementation of these decisions requires Leader Apo to manage and direct the process, the recognition of the right to democratic politics, and a solid, comprehensive legal guarantee. At this stage, it is important for the Turkish Grand National Assembly to play its role with historical responsibility.”

Turkish government: Historic step

Foreign Minister Hakan Fidan described the PKK’s decision to disband as “a historic step for regional peace” and affirmed that Türkiye will closely monitor the process. AK Party Spokesperson Omer Celik remarked that the decision was “an important step towards a terror-free Türkiye.”

CHP: Parliament should be involved in the process

Republican People’s Party (CHP) Deputy Group Chairman Ali Mahir Basarir, speaking on a live television broadcast, said: “This country has been combating terrorism for 40 years. The silencing of weapons and the cessation of bloodshed are, of course, significant. However, for the legitimacy of the process, it is essential that Parliament is involved.”

Expressing his unease regarding the lack of transparency in managing the process, Basarir commented: “We should not be learning about this process from Samil Tayyar. It should be conducted transparently with the parties represented in Parliament. No one should be providing us with information from journalists or through back channels. If Parliament is excluded, social consensus cannot be achieved.”

The PKK’s decision to disband positively impacted the Turkish economy. According to Reuters, the BIST 100 index gained over 3%. The Turkish lira also appreciated by 1.3% against the Euro, and an increase was observed in international bonds.

The PKK’s decision to disband is viewed as the beginning of a new era in Türkiye and the region. However, the future trajectory of the process and its ultimate success remain uncertain.

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US and China agree to cut tariffs, signaling trade war ease

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The US and China, in a significant step in the tariff war that threatened to disrupt trade between the world’s two largest economies, have agreed to reduce tariffs for the next 90 days.

Under the agreement reached in Geneva, the US will reduce tariffs on Chinese goods from 145% to 30%, while China will reduce tariffs on goods imported from the US from 125% to 10%. The development was announced on Monday.

US Treasury Secretary Scott Bessent stated on Sunday that “significant progress” was made during two days of trade talks with Chinese officials in Geneva, signaling that Washington and Beijing could begin to de-escalate tensions.

“We will provide details tomorrow, but I can say that the talks were fruitful,” Bessent told reporters after his meetings with Chinese Vice Premier He Lifeng, which were also attended by US Trade Representative Jamieson Greer.

Greer commented, “It is important to understand how quickly we reached an agreement, which perhaps indicates that the differences were not as significant as perceived,” adding that “a lot of groundwork had been done.”

Optimistic statements from the US negotiating team were the first indication that the countries could calm the trade war that had shaken financial markets and caused concerns about global supply chains.

The US applied a 145% tariff on goods from China, and Beijing retaliated with a 125% tariff.

China’s embassy in Washington did not respond to a request for comment regarding China’s stance on the negotiations. The US and Chinese negotiating teams met at the residence of Switzerland’s UN ambassador in Geneva.

After the first day of negotiations on Saturday, Trump wrote on his Truth Social platform that the US and China had made “great progress.” Trump used the phrase, “a friendly but constructively negotiated full reset.”

According to analysts, the China-US talks held over the weekend are not only economically and politically significant for both sides but also mark the beginning of a long-term process to address tariffs and other trade barriers.

This positive step seen in Geneva, Switzerland, will provide both powers with temporary domestic political relief without appearing weak in the trade war.

Matteo Giovannini, a visiting researcher at the Center for China and Globalization, stated, “The US side is under political pressure to show gains.”

“On the other hand, China views the negotiations not as a singular outcome but as a strategic process to manage bilateral competition, economic resilience, and long-term development goals,” said Giovannini, noting that Beijing’s behavior indicated a game plan based on strategic patience and economic self-preservation.

Speaking to the South China Morning Post, Giovannini added, “By building resilience, China aims to protect its domestic economy from external shocks while selectively engaging in global markets.”

Giovannini, who is also a senior financial manager at the Industrial and Commercial Bank of China, emphasized that Trump’s characterization of the Geneva talks as an “agreement” could serve many short-term political purposes.

“This signals progress without making concrete commitments and allows the Trump administration to postpone further tariff increases while appearing strong,” he said. He further added, “This strengthens Trump’s image as a dealmaker by turning the trade issue from a stalemate into an evolving success story.”

Giovannini also noted that bringing a positive outlook to the situation could “calm financial markets or increase business support,” stating that this would give Trump “an advantage in domestic politics and at the negotiating table.”

Stephen Olson, a visiting senior fellow at the ISEAS – Yusof Ishak Institute in Singapore and a former US trade negotiator specializing in the economic impact of US-China competition, stated that the agreement reached on establishing a consultation mechanism was not a trade deal but an agreement to continue negotiations.

Neither side fully disclosed which topics were discussed, but analysts estimate that negotiators addressed potential reductions in tariffs on goods critically needed by one of the parties.

Olson said, “Given the political capital both sides have spent to initiate negotiations and then characterize the talks very positively, the ground appears set for at least a partial tariff reduction and progress on other issues such as fentanyl in the coming weeks and months.”

Brian Wong, a researcher at the Centre for Contemporary China and the World at the University of Hong Kong, said that while the US presented the agreement as a Trumpian success story and “deal,” Beijing’s plan was to focus on strengthening its trade relations with the world.

Rajiv Biswas, CEO of Asia-Pacific Economics, a research firm in Singapore, said that tariff reductions on US exports of oil, gas, and agricultural products to China, along with China’s exports of textiles, apparel, and electrical products to the US, are currently on the table.

Biswas stated that US aircraft manufacturer Boeing could also come up in discussions if both sides discuss whether to restart civil aircraft exports to China.

Biswas, predicting numerous rounds of negotiations stemming from the weekend talks to occur in the coming months, also stated that there would be a long-term “tech war” in the fields of semiconductors, artificial intelligence, and defense technology.

Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at the French investment bank Natixis, said that Chinese exporters are concerned about being forced to close their businesses because tariffs have virtually halted their trade with the US.

Garcia-Herrero described the weekend dialogue as “like a ceasefire.”

“They cannot keep fighting because they do not have the resources for it,” she said.

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