The latest U.S. 30-year bond auction revealed tepid investor appetite, signaling persistent concerns around fiscal trajectory and inflation resilience. The high yield printed at 4.819%, marginally above the when-issued (WI) level of 4.812% and slightly higher than April’s 4.813%, underscoring upward pressure on long-end rates. The bid-to-cover ratio slid to 2.31 from 2.43, its lowest in several quarters, suggesting more selective demand amid rising geopolitical and fiscal uncertainty.
Direct bidders—often domestic institutions—took 27.2% of the issuance (vs. 25.8% prior), while indirect bidders, typically foreign central banks and international funds, dropped to 58.9% from 61.9%, reflecting potential global reallocation away from dollar-denominated duration.
Takeaway: The Treasury market is signaling unease, even as macro data beats expectations. The yield curve steepening and auction softness highlight growing risks that could eventually anchor Fed policy paths deeper into 2025.
Trade Front Thaws: US-UK Framework Emerges as Beijing Watches Closely
Markets were buoyed by developments on the trade front. President Trump’s administration unveiled a “substantive” U.S.-UK trade framework, touching on steel, autos, pharmaceuticals, and beef quotas. While not a finalized FTA, the pact offers sectoral wins, notably:
- U.S. steel tariffs maintained, but Britain gains MFN quotas
- New channels for UK beef exports to U.S. markets
- Commitments to liberalize multiple tariff lines
WH Trade Advisor Navarro called the UK deal a “template” for future bilateral agreements, hinting at a cascade of deals “over the next month.” Meanwhile, USTR Greer stated confidently that the U.S. can have a “straightforward talk” with China.
In parallel, reports surfaced that the U.S. may cut China tariffs to as low as 50% from 145%, possibly as early as next week. President Trump commented, “Better go out and buy stocks now.”
Takeaway: The narrative is shifting. The combination of hawkish fiscal rhetoric and dovish trade maneuvering points to a 2025 strategy prioritizing election-cycle economic buoyancy over ideological rigidity.
Equities: Risk-On Rally Gains Steam Amid Rotation, CTA Triggers Hit
Markets turned decidedly risk-on Thursday, with broad short-covering squeezes reported by UBS analysts. The IWM (Russell 2000) outperformed SPY by 90bps, signaling a rotation into small caps.
Key indices and factors:
- High Short Interest Basket (UBXXSHRT): +4.6%
- Profitless Tech (UBXXZERO): +4.0%
- Cyclicals > Defensives: +300bps
- Healthcare/Pharma (UBXXPHRM): -1.0%, weighed by regulatory/tariff risk
The VIX dipped below 23, nearing the 200-DMA at 19.69, and 10Y yields climbed back to 4.37%, further flattening the curve.
“The pain trade is higher,” noted UBS, as hedge fund flows flipped from net sellers to buyers by mid-session, and long-onlys began asking for liquidity further out the risk curve.
Corporate Highlights: Industrial Policy, M&A, and Mixed Earnings Signals
Aviation and Aerospace took the spotlight with British Airways parent IAG confirming orders for 30 Boeing 787s—a win for the U.S. amid transatlantic cooperation, though Reuters also cited Airbus orders (A330, A350) in the mix. This dual sourcing reflects strategic diversification rather than full realignment.
The White House announced plans for a sweeping overhaul of air traffic infrastructure, earmarking billions to construct six new ATC centers and 15 control towers. Trump said he prefers to “give one contract for the overhaul,” emphasizing his intent to streamline procurement.
In M&A, UBS is reportedly in talks to divest hedge fund O’Connor to Cantor Fitzgerald, a move that may signal the Swiss bank’s intention to reduce balance sheet complexity post-Credit Suisse integration.
Meanwhile, Microsoft hired a former Meta marketing exec to support its Copilot AI initiative, reinforcing its pivot toward AI monetization amid competition from Google, OpenAI, and Anthropic.
Takeaway: These industrial and corporate developments reveal a bifurcated economic picture—where strategic capex and AI bets are thriving while regulatory and monetary forces cast longer shadows.
Earnings Recap: Lyft, Paramount, Coinbase Mixed; Monster, McKesson Beat
Select earnings outliers:
- $LYFT: Beat on rides, EPS surprise positive ($0.01 vs -$0.68 est.), but revenue slightly missed
- $PARA (Paramount): Modest beats across revenue segments, subscriber numbers beat est. by ~200k
- $COIN (Coinbase): Missed significantly on EPS ($0.24 vs $2.09 est.), solid volume but guidance flagged
- $MNST (Monster): Revenue miss but margin and EPS beat
- $MCK (McKesson): Strong EPS beat and guidance lift; will spin off Medical-Surgical unit
Earnings confirm bifurcation: traditional services (McKesson, Monster) outperform while crypto and media remain volatile.
Global Macro: Japan Disappoints, China Exceeds, Peru Cuts
- Japan: Real cash earnings fell -2.1% YoY (vs. -1.6% est.), household spending +2.1% surprises upside, but wage growth and inflation-adjusted consumption remain weak.
- China: April exports surged +8.1% YoY USD (vs. +2.0% est.), imports -0.2% far better than expected; trade surplus hit $96.18B, boosting RMB sentiment
- Peru: Central bank cut rates to 4.50%, continuing its easing cycle amid inflation moderation
The Asia-Pac region opened higher Friday, buoyed by U.S. optimism and strong China data. Nikkei +1.1%, Kospi +0.3%, ASX flat.
Outlook: Markets Face Tug-of-War Between Political Noise and Fundamental Anchors
Despite a week brimming with trade optimism, earnings beats, and short squeezes, rate hike pushback from S&P, weaker bond auctions, and elevated short positioning highlight how brittle sentiment remains. Add to this the historic bearish streak in the AAII survey—11 straight weeks of >50% bearishness—and the picture becomes one of tactical buying amid structural unease.
Next key markers:
- U.S. CPI next week
- China tariff policy rollout
- More sectoral trade deals likely incoming
- Continued Fed speak with potential to recalibrate 2025 dots
The systematic buyer may dominate the tape short term, but macro and fiscal pressures remain unresolved. Fade the euphoria or ride the melt-up? For now, the pain trade still points higher.
IBAFIN 
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