ORLANDO, Florida, March 11 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

Wall Street's failure to bounce back from its recent beating

on news of a potential ceasefire between Ukraine and Russia

shows just how worried investors are about the growth and market

impact from U.S. President Donald Trump's tariff wars.

Ukraine said on Tuesday it is willing to accept a U.S.

proposal for a 30-day ceasefire, a deal that Washington will now

put to Moscow.

Investors initially cheered the news, and at one point the

Nasdaq was up more than 1%. But Trump's announcement that he

will double tariffs on imported steel and aluminum products from

Canada to 50% weighed heavily, and traders ended the day with a

sea of red across their screens.

Today's Key Market Moves.

* The three main indexes on Wall Street close at fresh

five-month

lows. The S&P 500 is back in 'correction' territory, down more

than 10% from its peak, and the Nasdaq is off 15% from its peak.

* The dollar slides to a 5-month low against a basket of

major

currencies, failing to draw any support from the rebound in

Treasury yields.

* The biggest driver of that move is the euro, which smashed

through $1.09 for the first time since October. $1.10 is now

well within view.

* Bitcoin hits a fresh four-month low but ends the day 5%

higher,

snapping a five-day losing streak, as general risk appetite

recovers in U.S. afternoon trading.

* Britain pays a record-high yield on inflation-linked bonds

sold

via syndication. While U.S. borrowing costs may be easing,

they're rising in many parts of the developed world, especially

Europe.

The prospect of a Russia-Ukraine ceasefire is a ray of hope

for investors, but not enough to lift the darkening economic

clouds that are gathering. The brewing global trade war is

creating record levels of uncertainty, by some measures, and

businesses and consumers alike remain extremely nervous.

Despite the market turmoil and alarming level of uncertainty

his tariff agenda has created, Trump is showing no sign of

backing down, and on Tuesday he cranked the trade war up a gear.

Around $5 trillion has been wiped off the value of U.S.

stocks since the S&P 500 peaked a month ago, the dollar is

sliding, and volatility and corporate bond spreads are breaking

higher to levels not seen in months.

Trump dismisses this as part of the necessary "transition"

to a new, rebalanced U.S. economy. But it's taking its toll in

financial market pricing, as well spending, investment and

sentiment across the country.

One consequence of the tariffs chaos is the quandary it

could put the Federal Reserve in. Rate cut expectations are

picking up again due to the deteriorating growth outlook and

possible recession fears. But economists are also raising their

inflation forecasts, and a hotter-than-expected CPI report on

Wednesday would be particularly unwelcome for policymakers.

While implied volatility in U.S. Treasuries is rising, there

is no sign yet of any market dysfunction. But in such a tense

environment, the recent steep decline in open interest in the

Treasury futures market will be worth keeping an eye on.

Exposure to Treasury futures plunges at risky moment

Levels of open interest in the U.S. Treasuries futures market

rarely garner much attention, but this might be one of those

occasions, as President Donald Trump's tariff agenda threatens

to slam the brakes on the U.S. economy, perhaps even putting it

into reverse gear.

Commodity Futures Trading Commission figures show that open

interest, the broadest measure of investors' exposure to U.S.

bond futures, is sliding at a historic pace. In some cases, such

as two-year contracts, the fall is the sharpest on record.

In the week through March 4, open interest in two-year

futures fell by a record 396,525 contracts, or nearly $80

billion. That's around 10% of investors' total exposure, and it

means overall open interest is down 17% from its peak around the

U.S. presidential election in November.

Open interest in the 10-year space fell by 503,744

contracts, or $50 billion, the third biggest weekly fall on

record and again around 10% of total exposure.

The value of open interest across two-, five- and 10-year

contracts fell by $179 billion in the week to $1.858 trillion,

the lowest since June last year. More significantly, this marked

a notable 9% decline in a single week.

Why does this matter? As a paper by Federal Reserve staffers

Andrew Meldrum and Oleg Sokolinskiy found last month, cash

market depth "significantly affects liquidity fragility in all

maturity sectors" of the Treasury market. In other words, the

slump in open interest could mean that one of the world's most

important markets has become easier to disrupt.

'POINT OF CONCERN'

Some of this activity is seasonal, as funds are rolling

their positions into new benchmark contracts. And some is

related to the so-called basis trade, the arbitrage play used by

hedge funds to exploit the tiny price difference between cash

bonds and futures.

So far, so normal, in which case open interest should pick

up again in the coming weeks as investors of all stripes -

particularly asset managers on the 'long' side and hedge funds

on the 'short' side - rebuild their exposures.

But the sharp moves are coming at a time of heightened

volatility and uncertainty across all markets. Wall Street and

U.S. Big Tech have borne much of the brunt, with around $5

trillion wiped off the value of U.S. stocks in the last three

weeks. But volatility is on the rise everywhere.

Treasury yields have tumbled around 60 basis points in the

last month, and implied volatility as measured by the MOVE index

this week rose to its highest in four months.

True, there has been no sign of market dysfunction despite

the big price moves, but room for complacency is shrinking.

"Uncertainty could keep some investors away," said Gennadiy

Goldberg, head of U.S. rates strategy at TD Securities. "If open

interest doesn't come back it could be a sign that risk managers

are deleveraging. Right now it's something to watch closely

rather than a point of concern."

RECORD FALLS

Much of the decline in recent months is down to leveraged

funds reducing their 'short' positions more aggressively than

asset managers scaling back their corresponding 'long'

positions, suggesting speculators are deleveraging.

The value of leveraged funds' aggregate short position

across two-, five- and 10-year contracts is now $970 billion.

That's down by almost a fifth from the record high of $1.186

trillion in November last year.

This is probably not a bad thing and will likely please

regulators who had warned that a disorderly unwind of funds'

basis trades could pose major financial stability risks. That

hasn't played out.

But further reduced open interest from here at a time of

rising volatility might put liquidity, prices and investors'

ability to trade under greater strain.

As Meldrum and Sokolinskiy note, "Times of low market depth

are associated with an increased probability of low liquidity

states in the future."

And at this delicate juncture, anything that impacts

liquidity in the world's most important market is certainly

worth monitoring.

What could move markets tomorrow?

* Japan wholesale inflation (February)

* India CPI inflation (February)

* U.S. 10-year Treasury note auction

* Bank of Canada interest rate decision

* U.S. CPI inflation (February)

If you have more time to read today, here are a few articles

I recommend to help you make sense of what happened in markets

today.

1. The dawn of euro defence bonds?

2. Trump's tariffs create the 'Wild West' on

Wisconsin's

factory floors

3. If Europe builds the gigafactories, will an AI

industry

come?

4. US retail investors wary of buying the dip as

Trump

anxiety deepens

5. Macro hedge funds are outperforming so far in

2025

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at [@ReutersJamie and

@reutersjamie.bsky.social.]

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