Systematic Credit and Equity G-250 Trading Indicators for June 10, 2025
Trump Trade Dynamics
The "Trump Trade" persists, driven by headline reactions to China trade negotiations, pushing US equities and credit spreads higher while lowering US interest rates. As highlighted yesterday, the "Ready, FIRE, Aim" approach—buying the entire market regardless of valuation—has occurred six times since 2000. Two S&P 500 downturns, accompanied by US credit spread and high-yield valuation blowouts (similar to the February 22–April 10, 2025 risk spiral), occurred in 2018 amid tariff and trade tensions with China.
Money Supply and Market Liquidity
Before PPP loan forgiveness, 0% overnight interest rates, and triple stimulus packages under the Trump and Biden administrations, M1 money supply was just over $4 trillion. It peaked at $22.6 trillion in March 2022 and, despite Fed quantitative tightening and rate hikes, remains at $18.7 trillion—$12.6 trillion above trend. US money fund assets nearly quadrupled over the same period and remain almost three times higher than March 2020 at $6.7 trillion. With 35% of US bank deposits and capital market investments held offshore, the "Trump Trade" (market movements tied to Trump-related headlines) is unlikely to fade soon.
Capital Markets and Economic Growth
Declining trading volumes in most capital markets reflect a lack of new investment, a recurring theme in our updates. Economic models predicting job and economic growth from tariffs have not materialized, due to employment displacement and delayed capital investment stemming from unclear US and foreign trade policies. As noted yesterday, we are in the "second inning" of a nine-inning game. However, with $6.7 trillion in US money funds, buying power in US capital markets remains robust.
Valuation and Market Outlook
Quantitatively, US equities are significantly overvalued, while US corporate credit is slightly overvalued. Markets may sustain this trend for months until earnings, economic data, or Fed actions disrupt the "buy the headlines" dynamic. Our trading model identifies recent fund inflows as the key driver for this week's strategy.
Systematic Model Portfolio Trading Strategy Tuesday June 10
Of over 6,000 bonds in our research universe, 431 are trading near their 52-week tight or wide spread levels, 10% below average. The trading model indicates a 65% long/short positioning strategy, with the remaining 35% allocated to front-end indicators, comprising 70% floating-rate notes (FRNs) with maturities of three years or less, focusing on undervalued, deleveraging bonds.
Three most prominent trading issues on Monday –
(1) Air Products and Chemicals (APD, A2/A) trading volumes
(2) Warner Bros Discovery (WBD Baa3/BB) Recap and credit downgrade – Model indicators (attractive long). Please contact us for specific trade indicators.
(3) EchoStar (SATS, B/Caa1) DISH DISH (D/Caa1) Model indicators (attractive short). Please contact us for specific trade indicators.
.Inflation, Economic Data, and Interest Rates
New York Federal Reserve 1Y inflation expectations for June Fell precipitously to 3.2% from 3.63% In May.
US Treasury 10-Year Yield: down -12 basis points YTD.
Earnings Season Insights
We add Huntington Bank Ohio to our US Regional bank trading research group (now 13 constituents). As it has over $17 billion of $ denominated debt and preferred equity.
US Regional Bank Operating and Loan Metrics 1Q 2025
Loan growth at US' 13 largest regional banks is just over .9 % QoQ and 2.2% YoY. Different from Big 6 US Bank Balance sheets, Regional banks did not shift $ into trading securities in 1Q 2025. Loan charge off rates were far lower than the 25% YOY increase in charge off rates at the Big 6 Banks for the period ended March 31, 2025.
Tier 1 capital remains roughly flat YoY while returns to shareholders via dividends and share repurchases rose +28% YoY.
US Banks Balance Sheet Metrics 1Q 2025
Net Cash: Grew $37.6 billion QoQ and fell -$40 billion YoY.
Debt Issuance and Deposits: US Regional Banks redeemed $7.5 billion of net debt in 1Q 2025.
Liquidity: Grew by $30 billion QoQ and declined by -$77.5 billion YoY as deposits grew by $24 bil YoY.
Profitability: Stronger loan quality and non – interest revenue led to 15% earnings growth on 2.5% revenue growth
Monday's US Investment-Grade and High Yield Credit Trading
Trading volume was -13% below average Monday. G-255 issuers accounted for 89 of the top 100 traded bonds, representing 94% of top 100 issuer volume and 76% of total TRACE volume.
· Market Movement:
o U.S. CDX Index was unchanged @ 54bp.
o U.S. IG cash spreads ranged from -1 to -3 basis points tighter.
o Outperformers: Industrials and short-maturity financials.
Dealers purchased over $1 billion in high-yield bonds for the fifth consecutive day, with Citigroup (C Perps, attractive long) and Charter Communications (CHRTR, attractive long) being the most traded HY issuer curves. Dealers sold $1.8 billion of IG credit, with Wells Fargo (WFC, A3/BBB+, attractive short), Comcast (CMCSA, A3/A-, attractive short), and Citigroup (C, A3/BBB+, attractive long) being the most bought by end users. This trading pattern reflects a broad "risk-on" strategy rather than issuer-specific trades, driven by the liquidity of these bonds.
Over 20% of Air Products and Chemicals (APD, A2/A, not in systematic trading/research universe)'s $1.1 billion 3Y and 7Y fixed new supply traded, with dealers net buying over $100 million of both tranches.
Attractive trading sectors
Long Opportunities
None – there are only 181 bonds considered undervalued ($258 billion) and 59 considered attractive long trading indicators ($73 billion) by our trading model
Short Opportunities
U.S. Big 6 Banks (All Ratings): $654.6 billion in overvalued market capital across 252 bonds, with 78 short indicators.
Energy (All Ratings) : $199.3 billion in overvalued market capital across 138 bonds, with 84 short indicators.
BBB TMT: $185 billion in overvalued market capital across 109 bonds, with 42 short indicators.
Single A Healthcare: $127.7 billion in overvalued market capital across 89 bonds, with 31 short indicators.
Issuer News
Warner Bros. Discovery (WBD): S&P downgraded WBD's unsecured notes to BB (from BB+), the second-highest junk rating. WBD is refinancing over $14 billion in unsecured notes with $17.5 billion in secured bridge financing as part of its breakup, prioritizing new creditors over unsecured noteholders on a sum-of-parts basis.
Qualcomm (QCOM): Is Acquiring Alphawave for $2.4 billion, signaling expansion into the AI data-center market, bolstered by its recent inclusion in Nvidia's (NVDA) NVLink ecosystem.
30-Day Subprime Auto Delinquency Rates:
Santander Auto Trust (SANTAN): Delinquency rate surged 214 bps to 10.07% in April.
Carvana: Late-payment rate improved by 151 bps to 12.93%, though data volatility remains a concern.
Exeter: Late payments rose 18 bps to 9.09%.
AmeriCredit: Delinquency rate slightly improved to 9.14% from 9.25%.
Average: The 30-day late-payment rate across Carvana, Santander, AmeriCredit, and Exeter reached 13% in April, the highest since February 2024. Issuers include General Motors (GM), Ford (F), Santander (SANTAN), and Ally Financial (ALLY).
U.S. IG Credit Valuation and Spreads Tuesday
Historically, we observe 2–4 significant (±25bp) credit spread movements annually. About 50% of spread widening occurred between November 12, 2024, and April 10, 2025. Despite the trading model's "overvalued" stance, last week's substantial retail fund inflows and below-average attractive short trading indicators (compared to the two-year average) maintain the current trading strategy this week. Combined with the largest retail fund inflows of 2025 last week and over $80 billion in G-255 USD bond maturities or redemptions in the past 30 days, credit spreads have tightened, even with trading volume 15% below average.
At current trading levels we are "in the middle" of extremes as it relates to long and short credit trading valuations.
Global Equity Correlation to IG Credit Spreads
US equities and investment-grade (IG) credit spreads moved in tandem for 29 of the last 33 days. Key quantitative factors explain credit's relative underperformance compared to equities in 2025:
Technology represents 31% of S&P 500 market capitalization but only 8% of global top issuer debt.
Non-US corporate bond purchases declined 44% year-over-year.
Year-to-date retail inflows total $12 billion, 47% below the same period in 2024, despite last week's significant inflow.
With inflow into US retail corporate bond funds, US credit has slightly outperformed US equities over the past 10 trading days.
New Supply / Bond Maturities / Credit Fund inflows for June
No new G-255 new supply (IG or HY) Monday in either the US or Europe. While we have been told we will see an acceleration of new supply this month, it may still happen, but the world's largest issuers have yet to come to the US or European primary market in size during June. We have already noted that the $500mm Air Products & Chemicals (APD, A2, A) APD 4.9 10/11/32+65/7Y and $600mm APD 4.3 6/11/28 +35/3Y traded over 20% of the outstanding on the day it printed. That seldom happens.
New G-255 New USD Issues announced this AM:
Lloyds (LLOYDS, A3/BBB+)
$4NC3 Fixed to Fixed IPT +115 Area – Attractive to 85/5Y
$4NC3 FRN IPT SOFR Equiv - Attractive to DM94
Lloyds (LLOYDS, Baa1/BBB-)
$ 11NC10 Sub Fixed to Fixed IPT +190 Area – Attractive to 158/10Y
Australia & New Zealand Banking Group Ltd/New York NY (ANZ Aa2/AA-)
3Y Fixed IPT +60 – Attractive to 36/3Y
$3Y FRN SOFT Equivalent - attractive to DM 44
Australia & New Zealand Banking Group Ltd (ANZ, A3/A-)
$ 11nc10 Subordinated Fixed – IPT 165 area. Attractive to 135/10Y
G-255 selling bonds in Europe this morning
Oncor Electric Delivery (ONCRTX, A2/A+)
€9Y Fixed
Deutsche Bank AG Deutsche Bank (DB, Baa1/BBB)
€Benchmark 4NC3 SNP Fxd-to-FRN @ MS+105
Bank of Nova Scotia (BNS) is also selling covered bonds this AM in Europe.
Systematic Trading Model Indicators and Trading Strategy - Tuesday
This morning's model output:
431 attractive short indicators, +8 from Monday AM but just 2% slightly overvalued historic model trading valuation.
58 attractive long indicators, -6 from Monday.
Systematic Model Portfolio Trading Strategy Tuesday June 10
Of over 6,000 bonds in our research universe, 431 are trading near their 52-week tight or wide spread levels, 10% below average. The trading model indicates a 65% long/short positioning strategy, with the remaining 35% allocated to front-end indicators, comprising 70% floating-rate notes (FRNs) with maturities of three years or less, focusing on undervalued, deleveraging bonds.
Systematic Trading Strategy for the week ending June 12.
Strategy The trading model reverts to its prior strategy until new fund flow data is released this Thursday. The model prioritizes long positions in deleveraging new issues with attractive valuations. Avoid adding short positions until attractive short trading indicators exceed 400 and weekly fund inflows fall below $1.5 billion. The model indicates shorting one bond for each bond added long.
Systematic Credit Indicators
Our 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 managing volatility risk.
Most Recent Model Trading Indicators
NatWest (NWG, A3/BBB+) NWG 5.115 05/23/31 reached its avoid trading level on Monday
Union Pacific (UNP, A3/A-) UNP 5.6 12/1/54 is 1 of 10 new issue model indicators published prior to February 23, 2025 that has not reached its avoid trading level.
BHP (BHP, A1/A) BHP 5 1/8 02/21/32 is 1 of 10 new issue model indicators published prior to February 23, 2025 that has not reached its avoid trading level.
This morning the we publish the trading model attractive long indicators Cisco (CSCO A1/A) CSCO 4.95 02/24/32 @ 53/7Y ( deal came at 50/7Y)
Sample Trade Performance Report (January 4, 2025 – June 9, 2025)
Overview
Total Trades: 114 (1% of total indicators)
Performance Summary:
Long Indicators: 66/87 reached avoid-trading levels, tightening by -10.14 bp.
Short Indicators: 24/28 reached avoid-trading levels, widening by +5.3 bp.
Remaining Longs: 22 tightened by -0.19 bp.
Remaining Shorts: 4 tightened by -5.5 bp.
Average Spread Movement: ±6.94 bp in the indicated direction.
Success Rate: 79% of indicated reached avoid-trading levels (11% below normal).
Notes:
All initial indicators are based on TRACE print (or new issue price) at the indicated date.
All avoid indicators are based on TRACE print trade at the "avoid point" on the trade date.
Recent Performance (Since May 15, 2025)
17 long indicators hit avoid-trading levels, contributing -1.4 bp to the overall spread tightening for the 66 long trades.
Overall performance improved from ±4.91 bp to ±6.95 bp across 114 sample trades.
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.