Systematic Credit and Equity G-250 Trade Indicators for May 20, 2026
Credit Spreads, Equity Valuations, and Corporate Debt Trends
"And the hits just keep on rollin'." Global equity markets keep climbing, credit markets are stuck in neutral, and interest rates? Well, that depends on your zip code. The last two months have been a wild ride—defying logic yet utterly fascinating.
Is it typical for equities to surge 6.5% over 22 trading days while the UST 10Y yield jumps +26.5 basis points?
Is it normal for equities to rally 6.5% in 22 trading days when Q2 earnings estimates drop (-4.5%) and full-year forecasts slide (-5%)?
Is it standard for equities to gain 6.5% over 22 trading days while forward (2026) earnings growth estimates dip from 13.6% to 12.25%?
I've been in this game a long time. Historically, earnings forecasts correlate with equity prices. Interest rate shifts typically precipitate equity price action. Right now? That's not happening.
Historically, credit spread movements quantitively correlate with equity price changes—directionally, that's held true on over 85% of trading days in 2025. Cumulatively this year? Not quite.
So, what's driving US equity prices? Answer: Donald Trump. Quantitatively, Trump headlines are the hidden force behind equity price swings… for now.
Quick detour. Have I met The Donald? Yep. Seen him in action? You bet. I was Head of High Yield and Distressed Research at FMR Co. during the Trump Plaza and Trump Airline deals. Let's just say, when Dan Harmetz, Dave Breazzanno, Judy Mencher, and David Glancy are running the show, you sit tight, observe, and keep quiet.
Is Trump a savvy transaction guy? Check the bondholder outcomes from those deals and compare them to how the Trump Organization fared.
Is Trump a capital markets wizard? Take a gander at all his public securities over the past 30 years. DJT stock? Sure, it worked. The rest? Not so much.
But here's where Trump shines: he's the greatest salesman and con artist in history. I say this with total respect—his persuasive power is unmatched. I sometimes wonder if Fred Trump was his real dad or if it was W.C. Fields ("There's a sucker born every minute").
Consider this: the world's most sophisticated capital markets are shrugging off economic and corporate realities, chasing Trump headlines instead. The flood of capital into US equity futures and ETFs is steamrolling professional stock pickers, asset allocators, and portfolio managers. Who cares about comp store sales at Walmart, Home Depot, or Lowe's? NVIDIA's flat revenue growth outlook? Pfft. Loan growth at North American banks under 2% with charge-off rates above 25%? "Fuhgeddaboudit." Layoffs at Microsoft and Disney? Buy the dip. What?
The big question: How long does this show go on?
For credit spreads to hit their next extreme (tight or wide), equities need to lead the way. That's a statistical fact, not a hunch. With US equity prices and valuations near all-time highs, imagine the fireworks if issuers' outlooks improved instead of being "adjusted" or "outlook TBD."
The key to trading the model indicators are: (1) Stick with the G-254 (its been as large as 272) and (2) the corporate bond market (both HY and IG) trade "based on the calendar (earnings and new issue, which are related)". (3) "Let the trade come to you." The outcome is known quantity and can be stochastically calculated. It's not a question of "if" it's a question of "when."
Is the current trading strategy working? A: Yes see the model indicators on page 4 – 5.
What is the model output indicating this morning? A: Take some time off and keep enjoying the show.
Inflation, Economic Data, and Interest Rate Outlook
US factory activity contracted for a third consecutive month, with the ISM manufacturing index at 48.5 in May, slightly down from 48.7 in April.
The ISM import measure hit a 16-year low, and the export gauge dropped to a five-year low. These are notable survey results, but they reflect sentiment, not actual trade data.
ISM prices paid remained high at 69.4 in May (vs. 69.8 in April). While elevated, this is far below post-COVID peaks, signaling persistent but not extreme inflation (unlike the 6% suggested by other surveys).
The UST 10Y yield reached 4.82% on Monday, down -11.9 bp YTD for 2025 but up +3 bp YoY. Trump tariff and trade headlines are clearly influencing UST rates.
Earnings Season Insights
Major issuers, including Hewlett Packard Enterprise (HPE) reporting today, are still due this month. Of the 169 largest non-financial corporate debt issuers reporting this cycle, 91 are US-based. In Q1 2025, these issuers added $94 billion in net debt. They paid out $554 billion in share repurchasing and dividends, up $41 billion from the prior quarter. Revenue for these issuers was $3.15 trillion (+4.46% YoY). Notably, 17.5% of every revenue dollar went to shareholders, with the entire increase funded by bondholders and lenders.
Sectors with the largest net debt increases in Q1 2025: Single-A TMT, Single-A Healthcare, Single-A Consumer, and Single-A Industrial.
Monday's US Investment-Grade (IG) Credit Trading
Monday's trading volume was average, with dealers selling just over $3 billion in IG and HY bonds. Cleveland-Cliffs (CLF) was the only non-G-254 issuer among the top 20 bonds purchased by end users.
G-254 issuers dominated, accounting for 88 of the top 100 traded bonds last week, representing 97% of top 100 issuer trading volume and 70% of total TRACE volume.
Market Movement
U.S. CDX Index: (-1bp) at 55 basis points.
U.S. IG Cash Spreads: (-1 to -3bp) tighter Monday.
Sector Performance: Energy and US Banks were the best performing sectors on Monday.
Top net buys included Royal Caribbean (RCL), Goldman Sachs (GS), Wells Fargo (WFC), and Citigroup (C). Our trading model views GS and WFC secondary bonds as moderately attractive for short trades (not yet optimal) and RCL and C as attractive for long trades.
Top net sold issuers were NTT Finance(NTT), BAT Capital (T), and John Deere Financial (DE), all deemed attractive for short trades at tighter spread levels by our trading model.
Attractive Trading Sectors
Long Opportunities
None – there are only 271 bonds considered undervalued ($405 billion) and 74 considered attractive long trading indicator ($105 billion) by our trading model
Short Opportunities
U.S. Big 6 Banks (All Ratings): $602.5 billion in overvalued market capital across 232 bonds, with 45 short indicators.
Single A Energy: $97.1 billion in overvalued market capital across 67 bonds, with 30 short indicators.
BBB TMT: $193.2 billion in overvalued market capital across 109 bonds, with 24 short indicators.
Issuer News
Corporate Layoffs
Walt Disney Co. (DIS) is cutting several hundred jobs across its film and TV divisions, impacting marketing, publicity, casting, development, and corporate financial operations.
Microsoft Corp. (MSFT) eliminated "hundreds more jobs" shortly after its largest layoff in years, per Bloomberg.
U.S. IG Credit Valuation and Spreads
Our trading model, leveraging stochastic finite mathematics with over 95% probability outcomes, suggests U.S. investment-grade (IG) credit is approaching "Fairly Valued." Recent new issue trades from Walmart (WMT), Apple (AAPL), and Citibank (C) show minimal credit spread movement and below-average trading volume. Key trading opportunities include a short in November 2024 and a long in April 2025.
Global Equity Correlation to IG Credit Spreads
U.S. IG credit spreads showed modest correlation with the S&P 500 closing price on Monday. However, U.S. credit spreads have not kept pace with U.S. equities over 3-month, 6-month, or 12-month periods. This lag is largely due to balance sheet expansion among 56% of the world's largest corporate borrowers.
New Supply / Bond Maturities / Credit Fund Outflows for May
June is expected to see above-average new bond supply. Monday's new deals were lackluster: 5 G-254 issuers, 9 trades, totaling $5.9 billion. None of these issuers are reducing leverage.
None of Monday's new bond supply qualified for the publishing segment of our trading model. However, Pacific Gas & Electric (PCG, Baa1/BBB) stood out as the only attractive new USD issue launched on Monday.
In Europe, 3 G-254 issuers sold €3.5 billion in new supply on Monday.
Systematic Trading Model Indicators and Trading Strategy - Tuesday
This morning's model output:
283 attractive short indicators, down 11 from Tuesday morning.
74 attractive long indicators, up 5 from Monday.
Of over 6,000 bonds in our research universe, 343 are trading near their 52-week tight or wide spread levels—36% below normal and 37% below the threshold for initiating short positions.
Systematic Trading Strategy for Tuesday June 3
Strategy: Prioritize long positions in de-levering new issues with compelling valuations. Hold off on short positions until short indicators reach 400 and credit spreads enter the "overvalued" range.
Systematic Credit Indicators
Systematic credit trading Our 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
Cisco (CSCO, A1/AA-) CSCO 5.1 2/24/35 reached its avoid-trading level on Tuesday.