Trump throws out tariff threat again! European bonds rise in response, traders increase bets on ECB cutting interest rates three more times this year.

After US President Trump threatened to impose a 50% tariff on the European Union starting from June 1, the European bond market responded by rising, with market expectations that policymakers will have to further cut interest rates to support the economy. This statement led investors to significantly adjust their expectations for the European Central Bank's monetary policy. The latest pricing in the currency market shows that investors expect the ECB to cut interest rates by a total of 65 basis points at the remaining five policy meetings in 2025, meaning that three rate cuts of 25 basis points each are most likely to be implemented. Before Trump made the tariff threat, the market only expected two rate cuts. As a result, the yield on German 10-year government bonds fell by 10 basis points to 2.54%, European stock markets continued to decline, and the gains in the euro against the Swiss franc and pound sterling were completely erased. An index measuring the default risk of European high-yield corporate bonds saw its largest increase since April 9. Trump stated on Friday that there had been "no progress" in negotiations with EU officials. Earlier this week, it was reported that the EU had submitted a revised trade proposal to the US, attempting to inject momentum into the negotiations, but signs indicate that the US is not satisfied with the proposal. US Commerce Secretary Wilbur Ross bluntly said on Wednesday that some trade negotiations are "simply not feasible." For investors, this is another wave of tariff shocks caused by Trump's inconsistent trade policies. Global markets experienced severe volatility on April 2 due to the US announcement of additional tariffs, but in late April, the US government announced a 90-day delay in implementing most of the tariff measures. Kristoffer Kjaer Lomholt, a forex strategist at Danske Bank, said: "This clearly shows that market stability has actually given Trump the confidence to restart aggressive tariff threats. Releasing this news at a sensitive time near the weekend is expected to drive up long-duration assets, while cyclically sensitive assets may be sold off."