Global stock markets reached new highs on Wednesday following a U.S.-Japan trade deal and progress on a U.S.-Europe agreement. S&P 500 and MSCI All Country indexes soared. Foreign demand for U.S. bonds calms markets despite tariff fears. U.S. bond market remains resilient with strong demand for Treasury notes and bonds from foreign investors.

The U.S.-Japan trade deal alleviates market concerns as tariffs on Japanese imports are set at 15% instead of 25%. U.S.-EU deal may follow suit with a 15% tariff, half of Trump’s threatened 30%. Investors react positively as fears ease. Long-term tariff impacts on growth, inflation, and profits remain uncertain.

Investors react positively to U.S.-Japan trade deal, pushing S&P 500 and MSCI World to record highs. Japan’s Nikkei jumps 3.5%, Eurostoxx futures rise 2%. Dollar falls for third day. U.S. earnings, including Google and Tesla, also impact markets. $13 billion auction of 20-year Treasuries met with strong demand.

Foreign demand fuels U.S. bond market calmness, with investors attracted to attractive yields. May TIC data shows $146.3 billion in foreign purchases of U.S. Treasuries. Private sector holds over $5 trillion in Treasuries, outstripping official holdings. Demand from private sector buyers, like pension funds, remains high.

Regulatory changes to U.S. banking system and adoption of stablecoins could boost demand for Treasuries. Fed’s proposed revisions to leverage ratio could free up $1.1 trillion in extra buying capacity. Increased use of stablecoins pegged to T-bills or U.S. dollar may drive demand for shorter-dated Treasuries.

Despite $1 trillion debt issuance expected, U.S. bond market remains resilient. Heightened uncertainty around tariffs, geopolitics, and deficits haven’t led to prolonged selloffs. Bond market selloffs unlikely to last long due to lack of alternatives. Treasuries market remains strong, bigger than major government bond markets combined.

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