Systematic Credit and Equity G-255 Trading Indicators for September 5, 2025
Good Morning
Thursday saw one G-255 new bond issuance, above-average credit trading, and a slight recovery in risk trading. USD credit and U.S. equities both improved, with credit outperforming equities. Citigroup issued its first Senior Holdco bond since May, the first 2025 issuance flagged by the trading model as both an attractive long opportunity and suitable for adding on weakness. This is due to Citigroup being the only Big 6 bank trimming net debt as of Q2 2025.
Later this morning we will see the much awaited US Non – Farm Payroll date for the month of August.
The impact on the Federal Open Market Committee's overnight rate decision in 8 trading days is negligible.
Non – Farm Payroll Data
As for the reported number impacting the UST curve? Unless the NFP number deviates by +/- 350,000, there is a 5% to 12.5% probability that US Treasuries will shift +/- 2.5 basis points over the next 5 trading days from their closing levels last night.
As for NFP payroll correlation to the US unemployment rate? There is no correlation between NFP payroll data and the US unemployment rate. However, a strong correlation exists between weekly jobless claims, which are independent of US Federal Government data, and the reported US unemployment rate. Thursday's data indicates that initial jobless claims have exceeded the level from the last week of August 2024 for the first time in three months.
Impact of the US appellate Court's reversal of Whitehouse tariffs
The reversal of Whitehouse tariffs by the US appellate Court last Friday will have increasingly tangible effects on accounting and earnings as the legal process progresses. The need to recalibrate the impact of these tariffs introduces uncertainty for third-quarter earnings and fiscal year 2026 projections.
With earnings season commencing with PepsiCo (PEP A1/A attractive short both credit and equity) and Delta Airlines (DAL Baa2/BBB attractive long both credit and equity) in the second week of October, we anticipate there will be significant earnings estimate adjustments as well as reports of "material" items for G – 255 issuer worldwide within 30 days of reported results.
Broadcom results and BBB TMT
Broadcom (AVGO, Baa1/BBB+) reported outstanding earnings. The trading model continues to identify BBBrated Technology, Media, and Telecom (TMT) bonds and floating-rate notes as the most compelling long opportunities in the USD corporate bond market.
Trading Model Indicators
The trading model indicator has moved back to overvalued, adding almost 200 short trading recommendations in the past 3 trading days.
While the number of short corporate trade indicators has rebounded to the 3 – 6 month average we note that 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.
• 41 of these attractive long bonds increased in value.
• 3 new bonds reached their avoid trading levels, defined as a credit spread tightening of at least -5 basis points.
The trading model continues to see much of the new G -255 supply as attractive long.
Today's Systematic Trading Sector Indicators
Big 6 Senior Bank Holdco (USD only)
USD Single A Healthcare sector (USD only)
European Single A and BB Energy (all currencies)
Are the top 3 short indicated sectors.
UK Banks (all currencies)
US BBB TMT (USD and EUR)
French Banks (all currencies)
Are the top 3 long indicated sectors.
USD Systematic Trading Model:
This morning's model indicators continue to indicate US credit will tighten or rise in the near term. This despite 6 successive credit declining trade days prior to Thursday.
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 152 long/short trades in 2025 (marked via TRACE), 91% achieved ±5 bp targets, averaging ±7.35 bp per trade. Between June 30 and August 25, 2025, 27 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
Initial Jobless Clams for the week ended August 29 rose to 9k YoY to 237k The 4 week average of 231k is 1k higher for the same week YoY.
ISM Services August Survey rose to 52.0 from 50.1 in July. New orders rose to 56.0 from 50.3. Prices remain elevated 69.2
Challenger, Gray & Christmas reported 85,979 job cut announcements in August.; 892,362 year-to-date.
Challenger: "Highest YTD since 2020 when 1,963,458 were announced."
"August marks the sixth time this year that the job cut total surpassed that of the corresponding month one year prior."
Thursday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: +11% above average
-G-255 Issuers: 95 of the top 100 traded issuer bonds accounted for 95% of top 100 issuer volume and 70% of total TRACE volume.
High-Yield (HY) Trading
-Volume: +13% above average
-G-255 Issuers: 14 of the top 25 traded bonds accounted for 56% of top 25 issuer volume and 61% of total TRACE volume.
Market Movement
U.S. CDX Index: -1.4bp @ 49.5bp
U.S. IG Cash Spreads: tighter for a first day in 7 (-1 to -3bp) with TMT outperforming
CDX HY Index: +.3 @ 107.5 (per Bloomberg).
HY Cash Bonds: Were higher Thursday with HY Consumer and Healthcare outperforming.
High-Yield Activity
- Dealers bought $1.1 billion of HY bonds Thursday.
Most Bought HY Bonds
- Neptune Bidco (NLSN B2/B)
Most Sold HY Bonds
- Cleveland Cliffs (CLF Ba3/BB-)
Investment-Grade Activity
- Dealers bought $1 billion of IG bonds Thursday.
Most Bought Sector: Healthcare
- Eli Lily (LLY Aa3/A+ attractive short)
- CVS (CVS Baa3/BBB attractive long)
Most Sold Sector: Big 6 banks
- Citigroup new issue (C A3/BBB+ attractive long)
- 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 195 undervalued bonds ($288.4 billion), with 84 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,504 bonds ($1.47 trillion) are overvalued per the stochastic credit trading model, with 813 short trade indicators.
U.S. Big 6 Banks (All Ratings): 297 bonds ($747.5 billion) overvalued, with 150 short indicators.
Single A and BB Energy: 102 bonds ($169 billion) overvalued, with 65 short indicators.
Single A Healthcare: 115 bonds ($166.7 billion) overvalued, with 81 short indicators.
Issuer News
Oracle (ORCL Baa2/BBB)
JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group Inc. are leading a roughly $38 billion debt package to fund data centers connected to Oracle Corp. in Wisconsin and Texas.
The data centers, which will be developed by Vantage Data Centers, would be used by Oracle to power OpenAI, with OpenAI agreeing to rent 4.5 gigawatts of additional data center capacity from Oracle.
ORCL credit has a short trading indicator, ORCL equity has a long indicator.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 21% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: Our systematic credit trading indicator (IG and HY) returns to overvalued after a 5 trading day pull - back. 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 +42 bp higher YoY and -42 bp 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 (-8bp) fall in UST 10Y yields over the past 4 trading days.
Global Equity Correlation to IG Credit Spreads
USD credit and US equities both improved Thursday with credit outperforming equities. It was the 5th trading day in a row 7 where US credit and equity risk direction correlated. 10Y credit and equity prices have correlated 136 out of 179 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
Citigroup was the only G-255 issuer to sell new bonds on Thursday, totaling $6.5 billion across three tranches: 6NC5 fixed-rate, 6NC5 floating-rate, and 11NC10 fixed-rate. All are classified as "bail-in" capital, issued by the sole de-leveraging institution among the Big 6 trading sector. The trading model indicator signaled an attractive long position for all three bonds, with a recommendation to add on spread widening.
US Fund Flows (Week Ended September 3, 2025)
According to LSEG Lipper, US fund flows for the week ended September 3, compared to the prior week, are as follows:
Short and Intermediate Investment-Grade Bonds: $2.64 billion inflow (vs. $1.81 billion inflow)
High-Yield Notes: $249.5 million outflow (vs. $704.82 million outflow)
Treasuries: $49.7 million inflow (vs. $873.3 million inflow)
US Leveraged Loans: $306.9 million inflow (vs. $530.9 million inflow)
Mortgage-Related: $212.6 million outflow (vs. $234.8 million inflow)
This marks the 25th week in the last 32 where both investment-grade ETFs and mutual fund ETFs experienced simultaneous inflows.
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.
41 of these attractive long bonds increased in value.
3 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: 813, +169 from Thursday. The systematic credit market indicator now overvalued. The number of short indicators = (+72%) than the 200 day moving average.
Attractive long indicators: 84, +5 from Thursday.
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 4, 2025
Closed Positions: This week, the long/short basket trade exited 1 new issue trade.
Enter New Longs: On Wednesday, 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.
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
Friday Trading Indicators: The new Cigna (Baa1/A-) CI 4 7/8 09/15/32 issued on Tuesday reached its reached its avoid trading level on Thursday. The Trading model indicator adds Mitsubishi UFJ Financial (A1/A-) MUFG 9/12/35 (-1bp) to NIP on and the C 5.174 09/11/36 new issue Friday.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 4, 2025)
Total Trades: 152 (1% of total trades).
Performance Summary:
Long Indicators: 110/120 reached avoid-trading levels, tightening by -9.53 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 10 widened by +.62 bp.
Remaining Shorts: 5 tightened by -14.8 bp.
Average Spread Movement: ±7.29 bp in the indicated direction.
Success Rate: 91% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.45 trading days) normal.
Broadcom Results from Thursday
Broadcom (AVGO, Baa1/BBB+, attractive long debt attractive long equity) Earnings Summary: Broadcom reported 3Q revenue that rose 19% YoY that rose by $6 billion to $4.1 billion.
3Q Operating income rose grew 55% YoY to $5.9 billion
3Q Gross margin rose 300 bp YoY to 67%
Financial Position:
• 3Q cash from operations rose 44% YoY to $7.2 billion.
• 3Q free cash flow rose by $5.4 billion YoY to $7.1 billion
• 3Q Net debt fell -$6.7 billion YoY.
Company did not use balance sheet to repurchase equity and pay dividends ($13.1 billion) in the first 9mos 2025.
Trading Model Indicator: 36 Broadcom secondary bonds in circulation have a market capitalization of $750 million or more. 5 AVGO systematic trading model indicators are undervalued, and 3 bonds are have a attractive long indicator. The AVGO 4.9 07/15/32 has the greatest spread tightening potential.
Equity Indicator: HPE US is attractive at $290.03 per share.
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.