Systematic Credit and Equity G-255 Trading Indicators for September 8, 2025
Good Morning
The day has arrived. We are confident that the French lower house will express no confidence in Prime Minister Francois Bayrou's government. While we were away on Friday, the US credit market moved on French corporate bonds, tightening by (-10bp) on average over three trading days. The trading adage "sell the rumor, buy the news" proved highly effective for this trade. Is there still a trade in Yankee Banks? A: Absolutely. The Deutsche Bank DB 4.95 08/04/31 is trading +8bp to its new issue spread (issued July 28) and has only rallied (-3bp) from its September 2 wide. Our trading model indicator remains long on this DB new supply bond for the fourth time in five weeks.
10Y French bond Performance over 3 trading days
ISSUER ISSUE Last WK Wide 52 Week Wide Fri Close (3 day chg)
BNP SUB (Baa2/BBB+) BNP 5.906 11/19/35 145/10Y (9/2) 215/10Y (4/11) 132/10Y (-13bp)
EDF (Baa1/BBB) EDF 5 ¾ 01/13/35 114/10Y (9/3) 155/10Y (4/11) 110/10Y (-4bp)
Soc Gen (Baa2/BBB) SOCGEN 6.066 01/19/35 135/10Y (9/2) 190/10Y (4/11) 120/10Y (-15bp)
BPCE Group (Baa1/BBB+) BPCEGP 6.293 01/14/36 131/10Y (9/2) 180/10Y (4/11) 122/10Y (-9bp)
Credit Ag (A3/A-) ACAFP 5.862 01/09/36 111/10Y (9/2) 149/10Y (4/11) 102/10Y (-9bp)
Other Yankee Bank Opportunities
ISSUER ISSUE Last WK Wide 52 Week Wide Fri Close (3 day chg)
Deut. Bank (Baa1/BBB) DB 4.95 08/04/31 108/5Y (9/2) 108/5Y (9/2) (105/5Y) (-3bp)
Non – Farm Payroll Data
As reported Friday, how did the number impact the UST curve? Unless the NFP number deviates by +/- 350,000, there's a 5% to 12.5% probability that US Treasuries will shift +/- 2.5 basis points over the next five trading days from their Thursday close. That's our story and we're sticking to it.
The August NFP number had no material impact on the unemployment rate. The weekly initial jobless claims, which closely correlate with the US Department of Labor's unemployment rate, are more reliable, with minimal "adjustments." Last Thursday's 237k and 231k initial claims were the first time in four months that combined claims exceeded prior-year same week totals, a material signal per our model.
Impact of Friday's number on the US Federal Reserve's overnight lending Policy?
None yet, we see CPI and PPI numbers this week.
Trading model indicators and trading strategy.
Our systematic trading model indicates USD HY and IG credit as overvalued but not a clear "short" signal. With continued inflows into IG credit, 45 sector indicators point to higher valuations (tighter IG spreads and higher HY prices). However, the model finds 10Y credit attractive over the next four trading days, which is unusual.
Trading Model Indicators
The USD credit market trading model indicator remains overvalued.
For the week ended September 4, 2025, 22 G-255 issuers sold $45.9 billion in new bonds across 50 transactions.
Key details:
• 44 deals showed attractive long model indicators.
• All attractive long bonds increased in value last week.
• 7 new bonds reached "avoid" trading levels, defined as a credit spread tightening of at least -5 basis points.
The model continues to view much of the new G-255 supply as attractive long.
Today's Systematic Trading Sector Indicators
Top 3 Short-Indicated Sectors:
• Big 6 Senior Bank Holdco (USD only)
• USD Single A Healthcare sector (USD only)
• European Single A and BB Energy (all currencies)
Top 3 Long-Indicated Sectors:
• UK Banks (all currencies)
• US BBB TMT (USD and EUR)
• French Banks (all currencies)
USD Systematic Trading Model:
This morning's model indicators continue to indicate US credit will tighten or rise in the near term. This despite 5 successive credit declining trade days prior Thursday and Friday of last week.
Trading Allocation Strategy
50% Long: Undervalued, deleveraging bonds.
30% Short: Overvalued bonds in re-levering sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 153 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.25 bp per trade. Between June 30 and September 6, 2025, 29 long trade indicators reached "avoid" levels, shifting the long/short basket to a "more short" stance. Last week saw strong inflows into US corporate bond ETFs and mutual funds for investment-grade bonds.
Risk Management
The model avoids adding risk to G-255 issuers reporting within 30 days, complying with global regulatory requirements for material events.
US Economic Indicators / Inflation and Interest rate outlook
US August nonfarm payrolls rose 22k, per Bureau of Labor Statistics data. July nonfarm payrolls revised up to +79k from +73k.
• Nonfarm payrolls net revisions: -21k from prior June and July.
• Unemployment rate: 4.3% vs. 4.2% in July.
• Avg hourly earnings: +0.3% in August vs. July, steady at +0.3% per month.
Friday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: +37% above average
-G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 97% of top 100 issuer volume and 73% of total TRACE volume.
High-Yield (HY) Trading
-Volume: +13% above average
-G-255 Issuers: 16 of the top 25 traded bonds accounted for 62% of top 25 issuer volume and 66% of total TRACE volume.
Market Movement
U.S. CDX Index: -.4bp @ 49.9bp
U.S. IG Cash Spreads: (-1 to -5bp) with Yankee banks and BBB TMT outperforming
CDX HY Index: -.2 @ 107.3 (per Bloomberg).
HY Cash Bonds: Were higher Friday with HY Yankee Banks and Healthcare outperforming.
High-Yield Activity
- Dealers bought $500 mm of HY bonds Friday.
Most Bought HY Bonds
- Warner Media (WBD Ba3/BB attractive long)
Most Sold HY Bonds
- Sun Oil Company (SUN Ba1/BB+ attractive long)
Investment-Grade Activity
- Dealers bought $1.9 billion of IG bonds Friday.
Most Sector: BBB TMT
- Broadcom (AVGO Baa1/BBB+ attractive long)
- T-Mobil (TMUS, Baa2/BBB attractive long)
Most Sold Sector: Big 6 banks
- Morgan Stanley (MS A1/A- attractive short)
- JP Morgan (JPM, A1/A attractive short)
Attractive Trading Sectors
Long Opportunities
Focus on de-leveraging issuers, including Single A-rated global Autos, BBB-rated TMT, BBB-rated Energy, Euro Yankee Banks and Floating Rate Notes.
Valuation: The stochastic credit trading model identifies 187 undervalued bonds ($282.8 billion), with 75
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,502 bonds ($1.49 trillion) are overvalued per the stochastic credit trading model, with 843 short trade indicators.
U.S. Big 6 Banks (All Ratings): 298 bonds ($750 billion) overvalued, with 173 short indicators.
Single A and BB Energy: 106 bonds ($172 billion) overvalued, with 70 short indicators.
Single A Healthcare: 115 bonds ($166.8 billion) overvalued, with 74 short indicators.
Issuer News
France (AA-) • Prime Minister Francois Bayrou's government is likely to fall due to his push to reduce France's massive debt load, with a confidence motion set for the lower house. Bayrou's plan includes €44 billion in spending cuts and tax hikes to narrow the 2026 deficit, but opposition parties are mobilized against his minority government.
French Bank Bonds and equities have long trading indicators. French Government Debt (FRTR) has a short trading indicator.
Nestle (NESNVX Aa3/AA-) • Nestlé SA offered approximately $760 million to acquire US microbiome therapeutics firm Seres Therapeutics Inc., per Inside Paradeplatz. The all-cash offer, valid until the end of August, was reported in a Nestlé letter dated Aug. 14. It's unclear if Seres' board accepted, with Seres' market cap at $169.5 million, closing at $19.36 on Friday.
NESVNX credit and NESN SW equity have short trading indicators.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 17% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: Our systematic credit trading indicator (IG and HY) remains overvalued. 140, (the most in the 34 year history of the trading model) of the world's 255 largest issuers of corporate debt, are adding leverage to their balance sheets.
2025 10Y credit spreads: are wider YoY and YTD.
UST 10Y rates are +39 bp higher YoY and - 47bp YTD
Note the spread widening indicated in the Bloomberg/Moody's 10Y index is the result of new supply at wider levels over the past 3 days combined with an (-19bp) fall in UST 10Y yields over the past 4 trading days.
Global Equity Correlation to IG Credit Spreads
USD credit and US equities failed to directionally correlate for the 6th trading day in 12. USD credit was improved in both the investment and non – investment grate spaces on Friday as US equity prices declined. 10Y credit and equity prices have correlated 136 out of 180 trading days in 2025. This is well below normal over the past 33 years. While there is an 80% historic correlation between US equity prices and 10Y US corporate credit spreads, many of the recent geopolitical headlines and US currency fluctuation have led to a temporary de-coupling of the two risk markets.
New USD G-255 supply and fund flow data
US Fund Flows were $4.4 billion of ETF and retail IG corporate bond inflows and $100mm of corporate HY outflows.
Broader G-255 Bond Issuance
For the week ended September 4, 2025, 22 G-255 issuers sold $45.9 billion in new bonds across 50 transactions. Key details include:
44 deals showed attractive long model indicators.
All of these attractive long bonds increased in value.
7 new bonds reached their avoid trading levels, defined as a credit spread tightening of at least -5 basis points.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 843, +30 from Friday. The systematic credit market indicator remains overvalued. The number of short indicators = (+79%) than the 200 day moving average.
Attractive long indicators: 84, -9 from Friday.
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Focus on deleveraging new issues with attractive valuations, targeting 10-year maturities.
Short Positions: Target re-levering issuers trading at the deepest discount from their model avoid point. Avoid 7-year maturities due to low attractiveness.
Replace Longs: Replace long positions that have reached their avoid trading level.
Portfolio Trading Hurdle: Maintain a 1:1 long-to-short ratio once the 70% long position hurdle is reached.
Current Status of trading indicators below:
During the last week 1 long trade reached its avoid trading levels and was replaced by 3 new issue and new short trade indicators.
Systematic Credit Trading Strategy September 8, 2025
Closed Positions: last week, the long/short basket trade exited 1 new issue and 1 secondary new trade.
Enter New Longs: On Tuesday, the model indicator added The new Cigna (Baa1/A-) CI 4 7/8 09/15/32, on Thursday added the new Toyota (A1/A-) TOYOTA 4.65 9/03/32, on Friday added the Mitsubishi UFJ Financial (A1/A-) MUFG 9/12/35 (-1bp) to NIP and the C 5.174 09/11/36 new issue. Today the model adds the new Merck (Aa3/A+) MRK 5.7 09/15/55
3. Enter New Short trades: The trading model indicators show adding at least 2 more new issue trades prior to adding any short trades.
4. Monitor Trade Position (Portfolio) Composition:
• Track the percentage of long positions relative to the total portfolio.
• If replacing the long positions that have reached their avoid trading level pushes the portfolio above the 70% long hurdle, initiate short positions in re-levering issuers (avoiding 7-year maturities) at a 1:1 ratio for any additional long positions.
5. Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic
6. Friday's Basket Trade long/ short ratio 67%
Systematic Credit Long/Short Basket Trade
The trading model uses predefined, back-tested processes driven by issuer data and market parameters, targeting ±5 basis points of spread movement in minimal trading days while minimizing volatility risk. The model employs only publicly available data.
Current Sample Systematic Basket bond trades based on trading strategy
Monday Trading Indicators: The new Merck (Aa3/A+) (MRK 5.7 09/15/55 trading @ 74.5 has an attractive long indicator for our trading model.
The second BMW (A2/A) BMW 4 1/2 08/11/30 long trading indicator reached its avoid trading level on Friday.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 8, 2025)
Total Trades: 154 (1% of total trades).
Performance Summary:
Long Indicators: 111/121 reached avoid-trading levels, tightening by -9.53 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 11 widened by +1 bp.
Remaining Shorts: 5 tightened by -16.85 bp.
Average Spread Movement: ±7.21 bp in the indicated direction.
Success Rate: 90% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.41 trading days) normal.
Disclaimer - This report is not intended as, and does not constitute an offer, or a solicitation to buy or sell any securities or financial instruments. All data, levels, opinions, and representations herein are provided for informational purposes only and should not be relied upon for making investment decisions. Past performance is not indicative of future results. The authors of this report assume no liability for losses or damages arising from the use of this information. Investors should consult with a qualified financial advisor before making any investment decisions. The information in this report is based on sources believed to be reliable, but no guarantee is made as to its accuracy, completeness, or timeliness.