A couple of people involved in the Altice credit trading curve read our note and are now long a few less Altice bonds this morning. Verizon (VZ), T-Mobile (TMUS), and Deutsche Telekom (DTE GY) equities traded poorly on Monday, though AT&T '35 bonds were slightly tighter.

G-255 Issuers Using Balance Sheet to Repatriate Capital to Shareholders

We have been writing for the past seven quarters — and continue to believe it is the "way of the future" — that re-levering corporate balance sheets to repurchase equity is a durable theme. However, recent results show that this strategy is having a more negative impact on TMT share prices than the benefit derived from the companies repurchasing their own shares.

Meta and the Communications Issuers Trade Indicators

Let's put this one to bed. No matter how much real estate or private debt/leveraged equity expertise anyone claims to have, Meta's investment in operating leases to build AI data centers — thereby creating and providing access to "better AI" — is clearly in the best interest of shareholders. Meta is in the technology and personal communications business and is the undisputed market leader. They are not in the data center real estate business. Much of the commentary and analysis we have read on this topic is, frankly, superfluous.

Yes, Meta may finally have more debt than cash on the balance sheet in the next couple of years. But with operating cash flow growing >20% YoY, borrowing to repurchase equity will enhance — not hurt — the value of the stock.

We showed yesterday how quickly BBB TMT issuers are re-levering to return capital to shareholders. That strategy is not working yet: T-Mobile (TMUS) equity is at a 15-month low. There are, however, BBB TMT bonds where the issuer is de-levering, and both the bonds and the equity should perform well.

For some issuers that are adding balance sheet leverage, the model continues to see the credit as a short.

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G-255 USD Auto Trade Indicators

There are sectors, however, where cash flow growth has slowed so dramatically that balance sheet growth is required to fund capex and operations. This inevitably means a slowdown in cash returns to shareholders.

There is a reason Autos are currently the only sector with short trade indicators for both equities and credit. Shareholder returns are slowing due to lower cash flow, which translates into more leverage and reduced share repurchases. The model's short indicators (for both credit and equity) are expected to remain in place for 6 months.

A particularly strong warning signal: when returns to shareholders exceed reported net income, dividends and share repurchases are almost certainly about to slow.

G-255 Credit Trading Sector Indicators and Monday Credit Trading

U.S. economic news was mixed. November ISM Manufacturing came in at 48.2 (down from 48.7), with both employment and new orders components remaining well below the 50 "break-even" level, signaling continued contraction. We have not yet seen sufficient movement in valuations (equities or credit) or in incoming/outgoing ETF and mutual fund flows to trigger a new trading allocation from the model.

• Top traded IG G – 255 issuer: Meta Platforms (Aa3/AA- Hold credit/long equity) unchanged to (-2bp) Monday

• Top Traded HY G – 255 issuer: Petroleos Mexicanos (PEMEX CIFR B1/BBB long) +2 to +4bp wider on Monday

Key Trading indicator economic results:

• ISM Manufacturing and PMI surprised to the downside: 48.2 in November (from 48.7 in October)

• Employment sub-index fell to 44.0 (from 46.0)

• New orders declined at a faster pace; input prices rose faster, driven by steel, aluminum, and tariffs

• ISM Manufacturing and PMI surprised to the downside, falling to 48.2 in November from 48.7 in October.

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G-255 Credit Market Valuation and New G – 255 Supply December 2

On a Risk/Reward basis, High Yield bonds have far outperformed Investment Grade in 2025

• UST 10-Year Rates: -9.9bp YoY and -47.9bp YTD. February 21, 2025, was the tightest spread date of 2025. April 10, 2025 was the widest spread date for 2025.

• Despite the US Fed Funds rate trading -150 bp lower on a 12 month basis, 10Y UST rates are -10 bp lower and 5Y UST rated are – 42b YoY. The current decline in UST rates has caused overall credit spreads to widen in 2025.

Bloomberg 10Y credit spreads are derived by taking the Moody's index yield and subtracting the UST 10Y YTM.

Merck (Aa3/A+ long credit & equity) became the fourth major Single-A pharmaceutical issuer to access the USD bond market in the past five weeks. Roche, Pfizer, and Novartis have together sold 22 tranches totaling just under $20 bn. According to our trading model, the new Merck transaction was the most attractively priced of the four.

We also saw Burling Northern (BNSF) sell a 30Y bond and Australia and New Zealand bank (ANZ) sell 3Y and 5Y FRN along with the 3Y fixed. It's the first time in several months that three AA rated issuers came to the USD corporate bond market on the same day.

4 more week of November 12, 2025 new G – 255 issues along and one more Energy new issue from October reached their avoid trading level on Monday. The majority of the bank bonds (US and Yankee ) issued in October are still outside the model's avoid levels where a minimum (-5bp if possible) spread tightening over the next month is expected to occur. 921 of 1069 bonds issued ($1.08 trillion) have reached their avoid trading level in 2025.

We will review the October/November new supply in the next G-255 new supply report.

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G-255 Credit and Equity Market Indicators December 2

• Attractive Long Credit Indicators: 76, (-12 from Monday and -26% below the 200-day moving average of all long indicators).

• Attractive Long Credit Market Cap accounts for: 34% of all undervalued Systematic Credit capital.

• Attractive Short Credit Indicators 700, (+1 from Monday and +36% above the 200-day moving average of all model short trade indicators).

• Attractive Short Credit Market Cap accounts for: 48% of all overvalued Systematic Credit capital.

G-255 Equity Trade Indicators and US Equity Correlation to Overall US Credit Spreads

US equities and credit markets correlated did not correlate directionally Monday while equities were lower and credit was better. The two markets have moved in the same direction as in 8 of the past 12 trading days.

• US equities are WoW; US credit markets are unchanged in the week ended November

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• US equities are -.4% lower over the past month, US credit spreads are now just wider MoM.

2025 is on track for the second-weakest year in 32 for USD credit-equity correlated movement—historic 80% vs. ~74% this year.

Systematic Equity Trading Indicators December 2

• Attractive Long G-255 Equity Trade Indicators: 60 (includes both undervalued and equities priced at

extreme discount (+5 from Monday and at the 200-day moving average of all long trade indicators).

• Attractive Short Equity Trade Indicators 8, (+2 from Monday and +0.9% above the 200-day moving

average of all model short trade indicators).

• For G-255 issuers, equity prices of the world's most indebted companies were -.39% Monday and +1.95% over the past week, while the S&P 500 fell .46% Monday and rose + 1.73% over the past week.

• Why are G-255 equity issues outperforming the S&P and Dow? A: Over 30% of the 242 publicly traded G -255 equities have already reached their 2025 low price and 40% of the G-255 issuers are non – US corporates.

• G-255 issuers are returning more capital to shareholders (via dividend growth and share repurchase) than S&P issuers as a whole.

• Highest ranked equity long indicators on Monday:

Meta Platforms Inc (META) Comcast Corp (CMCSA) Walt Disney Co/The (DIS)

Texas Instruments Inc (TXN) Oracle Corp (ORCL) T-Mobile US Inc (TMUS)

Deutsche Telekom AG (DTE GY) Home Depot (HD) Carnival Cruise (CCL)

Royal Caribbean (RCL)

G -255 Issuer News on Monday

Airbus (AIRFP A1/A short credit/long equity) will inspect 628 panels that may be too thick or too thin, with 168 planes already in service with carriers and the rest still at Airbus in various stages of production.

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G-255 Specific Credit Sector Indicators December 2

Long Opportunities:

Focus on de-leveraging issuers, including Single A and BBB-rated TMT, UK Banks, US Regional Banks, and Floating Rate Notes.

• Valuation Insight: The stochastic credit trading model identifies 213 undervalued bonds ($335 billion market

value), with 77 long trade indicators across the 6,000-bond USD universe.

• At present only Single A rated TMT, BBB rated TMT, BB rated TMT and US Regional Bank sectors have 10+ long individual bond trade indicators.

Short Opportunities

• 1,496 bonds ($2.32 trillion) are overvalued per the stochastic credit trading model, with 700 short trade indicators.

• U.S. Big 6 Banks (all ratings): No longer a short indicator as of 10/22. +6 to +14 bp 9/22 – 10/22

• Single A and BB Energy: No longer a short indicator as of 10/27. Bonds +6 to +14 bp 9/27 -10/27

• Single A Healthcare: No longer a short indicator as of 10/22. Bonds +5.5 to +13 bp 9/22 – 10/22

• Single A Industrials: No longer a short indicator as of 10/22. Bonds +6.5 to +15 bp 9/22 -10/22

• Autos: 156 bonds ($167 billion) are overvalued, with 103 short trade indicators

Systematic Portfolio Daily Trading Model Indicators

• Long Indicators: Target deleveraging new issues with attractive valuations, focusing on 5-year maturities.

• Short Indicators: Target releveraging issuers trading at the deepest discount from their model avoid point, avoiding 7-year maturities due to low attractiveness.

• Replace Longs: Swap long positions that have reached their avoid trading level.

• Portfolio Trading Hurdle: Maintain a 1:1 long-to-short ratio once the 67.5% long position threshold is reached.

• Current Status: Add new supply trades where the issuer is deleveraging; add new issue bonds where spreads widened by +2 basis points.

• Current Status of Trading Indicators: Last week, one short trade and two long trades reached their avoid trading level. The trading model added three long indicators.

Monitor Trade Position Composition:

• Track the percentage of long positions relative to the total portfolio.

• If replacing long positions that have reached their avoid trading level pushes the portfolio above the 65% long hurdle, initiate short positions in releveraging issuers (avoiding 7-year maturities) at a 1:1 ratio for additional long positions.

• Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic strategy.

• Look for individual bond indicators to change overnight: Historic trading levels are leading to overnight adjustments to long, short and avoid indicator levels.

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G-255 Specific Bond Trading Indicators December 2

• Closed Positions: The Cigna (Baa1/A-) CI 2.4 03/15/30 (short) and Amazon (A1/AA) AMZN 4.35 03/20/33 (long) both reached their avoid trading levels Wednesday November 19. The Truist Bank (Bank Sub A3/A-) TFC 2 ¼ 3/11/30 short trade indicator reached its avoid trading level on Monday November 21. The General Motors (Baa2/BBB) GM 3.6 06/21/30 short trade indicator reached its avoid trading level on Monday 11/24.

• Enter New Longs: The trading model added Meta (AA3/ AA-) META 4 7/8 11/15/35 and META 5 1/2 11/15/45 new supply long trade indicators on 11/7. The new Amazon (A1/AA) AMZN 4.35 03/20/33 was added to the Model Trade on Monday 11/17.

• Enter New Short Trades: The trading model added General Motors (Baa2/BBB) GM 3.6 06/21/30 as a short trade on Monday 11/17. The trading model added BP (A2/A) BPLN 4.893 09/11/33 as a short trade on Thursday 11/20, the Toyota (A2/A) TOYOTA 4.8 01/05/34 Monday 11/21 and the CVS (Baa3/BBB) CVS 1 3/4 08/21/30 on Monday 11/24

Current Sample Systematic Basket bond trades based on trading strategy December 1

Systematic Trading Indicators Monday: None.

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G-255 Credit Basket Trade Statistics

Monday's Basket Trade Long/Short Ratio: 70%

Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – December 1, 2025)

Performance Summary: Total Trades: 189 (1% of total trade indicators).

• Long Indicators: 126/145 reached avoid-trading levels, tightening by -9.2 bp.

• Short Indicators: 36/44 reached avoid-trading levels, widening by +5.85 bp.

• Remaining Longs: 19 widened by +.65 bp.

• Remaining Shorts: 8 tightened by -15.4 bp.

• Average Spread Movement: ± 6.53 bp in the indicated direction.

• Success Rate: 86% of indicators reached avoid-trading levels, which is slightly below normal.

• Average trade holding period: 23 days (above average)

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.