Long Opportunities:

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

• Valuation Insight: The stochastic credit trading model identifies 184 undervalued bonds ($335 billion market

value), with 94 long trade indicators across the 6,000-bond USD universe.

• At present Single A and BB rated TMT are the only sectors with 10 or more long trade indicators.

Short Opportunities

• 1,532 bonds ($2.694 trillion) are overvalued per the stochastic credit trading model, with 932 short trade indicators.

• U.S. Big 6 Banks: 310 bonds ($774 billion) are overvalued with 189 short trade indicators.

• 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: 126 bonds ($181 billion) are overvalued with 98 short trade indicators.

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

• Autos: 165 bonds ($174 billion) are overvalued, with 129 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 16

• Closed Positions: Florida P&L (Aa2/A+) NEE 5.6 02/15/66 reached its avoid trading level on Friday December 5. Philip Morris (A2/A) PM 4 1/4 10/29/32 and McDonald's (Baa1/BBB+) MCD 4.4 02/12/31 new issue trade indicators both reached their avoid trading levels Tuesday 12/9. Celanese (Ba2/BB) CE 7 02/15/31 and Capital One (Baa1/A-) COF 5.197 09/11/36 new issue trade indicators both reached their avoid trading levels Wednesday 12/10.

• Enter New Longs: The new Amazon (A1/AA) AMZN 4.35 03/20/33 was added to the Model Trade on Monday 11/17. On Tuesday December 2, the Florida Power & Light (Aa2/A+) NEE 5.6 02/15/66 and on Wednesday December 3, Celanese (Ba2/BB+) CE 7 02/15/31 were added as new issue long indicators.

• Enter New Short Trades: 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. The model again produced a short trade indicator for General Motors (Baa2/BBB) GM 3.6 06/21/30 on Monday 12/8/25.

Current Sample Systematic Basket bond trades based on trading strategy December 16

Systematic Trading Indicators Monday: None

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G-255 Credit Basket Trade Statistics

Tuesday's Basket Trade Long/Short Ratio: 64%

Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – December 15, 2025)

Performance Summary: Total Trades: 192 (1% of total trade indicators).

• Long Indicators: 132/147 reached avoid-trading levels, tightening by -9.23 bp.

• Short Indicators: 36/45 reached avoid-trading levels, widening by +5.85 bp.

• Remaining Longs: 15 widened by +.1 bp.

• Remaining Shorts: 9 tightened by -16.1 bp.

• Average Spread Movement: ± 6.67 bp in the recommended direction.

• Success Rate: 87.5% of indicators reached avoid-trading levels, which is slightly below normal.

• Average trade holding period: 22.9 days (above average)

G-255 Trade Sizes and Systematic Trade Process

The G-255 Equity and Credit Indicators for the World's Largest Issuers of Corporate Bonds

• G-255 represents the world's 255 largest issuers of corporate securities and have a minimum equivalent of $15 billion of tradable liquid debt market capital in all global currencies.

• At present there are just under 6,000 G-255 USD bonds in circulation.

• The average capitalization of each G-255 bond is just over $1.2 billion (including floating rate notes).

• There are 242 publicly listed equities for the G-255 debt issuers that trade in 8 currencies.

• The total equity market capital of the 242 stocks is just over $44 trillion or $182 billion per issuer. That is 60% larger equity capital per constituent than the S&P 500.

• 80 of the 242 publicly traded equities for the G-255 are domiciled outside of the United States.

G-255 Credit Indicator USD Trading Liquidity

• The Systematic G-255 trading system is designed to trade with no human input. Each fixed coupon USD trading indicator requires $750mm of outstanding market capital and $250mm of total trading volume in the prior 30 trading days if not a new issue.

• Each G-255 floating rate note USD trading indicator requires $300mm of outstanding market capital and $50mm of total trading volume in the prior 30 trading days if not a new issue.

• Each G-255 underlying equity is listed on the issuer's national equity trading exchange.

G-255 Credit Indicators USD Trading Process and Size – Overall Strategy Is Designed for $3 Trillion of Assets

• The G – 255 equities and bonds are the most liquid cash securities in their local markets. The USD bond and equity indicators are "systematic" and employ only publicly available issuer disclosure and market trade prints on TRACE or any of the US trading exchanges.

• The G- 255 trading process is designed for "systematic" trading on electronic platforms for both equities and bonds.

• The trading system is designed to handle the largest institutional trade sizes as a result. The ability to trade size is dependent on user resources and trading relationships as all of the USD corporate bonds in the G-255 systematic trading model are traded OTC by over 80 dealers and all 5 major US electronic bond trading firms.

G-255 Credit Indicators and USD Liquidity - 80% of All Daily TRACE Trades

The G-255 Credit trading indicators cover 80% (95% of all USD investment grade and 48% of all USD non-investment grade trades) posted daily on NASD TRACE.

G-255 Trade Indicators are created daily for all 6,000 securities.

• Indicator calibration: The stochastic credit trading model employs earnings data to recalibrate balance sheet leverage and valuation indicators, and then compares spread-to-curve, earnings momentum, and debt ratios relative to the issuer's trading history.

• Bond-level granularity: G-255 USD issuers average 27 USD bonds outstanding ($27.5 billion of USD debt cap per issuer). The systematic model assesses historical relative value across the capital structure and creates indicators for overvalued or undervalued bonds.

• Equity-credit linkage: For dual-listed (equity and corporate bond) issuers, equity signals (cashflow comparisons and returns to shareholders influence credit spreads). G-255 disclosures synchronize these inputs and produce long and short trading indicator levels for each security that meets the model's liquidity minimum.

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Credit Trading Allocation and Sector Indicators, Monday Trading December 16

Monday saw unchanged trading as US investment grade trading focused on large-cap TMT and bank names, with Oracle (ORCL Baa2/BBB – short credit/long equity) and Broadcom (AVGO A3/A- – long credit and equity) the focus of Investment Grade G-255 trading. Pemex (PEMEX B1/BBB – long credit) and Celanese (CE Ba2/BB – attractive long credit and equity) were the focal points of Monday's trading, with no new supply.

We will see fund flow data again tomorrow as ETF data is reported.

It took just one day (last Thursday/Friday) of G-255 credit showing over 1,000 short indicators—representing 66% of the entire overvalued G-255 credit market value—for USD credit spreads to widen materially. Big 6 bank bonds have led the "risk-off" end-of-year trading since last Thursday.

G-255 equities remain attractive overall, with communications and "low-tech" issuers the most compelling. Credit, however, continues to look overvalued per the G-255 stochastic trading model.

• Top traded IG G – 255 issuer: Oracle (Baa2/BBB short credit/ long equity) -1bp Monday

• Top Traded HY G – 255 issuer: PEMEX (B1/BBB-) -4bp Monday

Key Trading indicator economic results Monday:

The New York Fed's Empire general business conditions index for December fell to -3.9 v 18.7 in November.

• Prices paid fell to 37.6 vs 49.0 in November.

• New orders fell to 0.0 vs 15.9.

• Number of employees rose to 7.3 vs 6.6.

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Oracle, Broadcom, Ford G-255 Credit Trade Indicators

A bit of a change in format, but those who review our output in various reports have indicated they would like to see the trade sector and allocation trade indicator changes first.

On to Monday's Most Asked Questions

Oracle: are they still a short credit trade indicator from the G-255 trading model? A: No

Oracle bonds have widened by as many as +60 bp since the G-255 systematic trading model short trade indicator flipped in June 2025. At present, ORCL has no short trade bond indicators.

In addition, while Oracle is re-levering its balance sheet, this is not the first time the company has managed an $80+ billion net debt load. The ORCL capital structure is trading at its 52-week wide.

So, is the ORCL cap structure a long trade indicator at current levels? A: No

But ORCL equity is attractive, and as the equity moves higher, the credit structure has an 87.5% probability of tightening (first at the 5Y level) over the next 66 trading days. There are no model indicators showing that there is more credit risk in the Oracle capital structure today than there was 2 years ago.

Best trades: Short ORCL CDS, Long ORCL 4.45% 09/26/30 +135/UST 5 Yr., Long ORCL equity. Best hedge: US IG CDX, ORCL equity put spread (not describing a specific trade in this publication).

Is Broadcom the top G-255 long trade credit indicator? A: Yes

There is no G-255 long trade credit issuer de-levering faster than AVGO (A3/A- – long credit and equity). Earnings and sales growth are accelerating, notwithstanding the company failing to exceed quarterly earnings expectations.

Is Ford (F) Still the top ranked G-255 equity short? A: Yes

We write often about unit volume growth, pricing, and cash flow, and how the systematic trading model incorporates those metrics into its equity trading indicators. Ford has the most downside of any G-255 equity.

Is Oracle (ORCL) the top ranked G-255 equity long? A: Yes

Similar to Broadcom, ORCL earnings and revenue growth is accelerating, notwithstanding their most recent earnings results, failing to match analyst expectations.

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G-255 Credit Market Valuation and New G – 255 Supply December 16

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

• UST 10-Year Rates: Down -23.4 basis points (bp) year-over-year (YoY) and -40.6 bp year-to-date (YTD). US Credit Spreads reached their tightest point of the year on Monday, February 21, 2025, and widest on Thursday, April 10, 2025.

• Despite the U.S. Fed funds rate declining -75 bp over the past 12 months, 10-year UST rates have fallen -22 bp YoY, while 5-year UST rates are down -55bp YoY. This muted decline in longer-duration UST rates has driven overall credit spreads wider in 2025.

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

No new G-255 USD corporate bond issuance on Monday

December 2025 G-255 New-Issue Activity (YTD)

During December, 8 G-255 issuers have sold 19 bonds totaling $21.2 billion, led by single-A-rated pharma issuer Merck (Aa3/A+), which priced an $8 billion 8-part transaction.

G-255 New-Issue indicator results

On Thursday, one additional November 2025 new issue, three October issues, one August issue, and one July issue reached their model-defined "avoid" levels.

Across all 2025 G-255 new issues, 89% of the indicators that have triggered have produced an average return of just under -8 bp over a 34-day holding period. Year-to-date, 965 of 1,082 bonds issued ($1.122 trillion notional) have hit avoid signals.

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G-255 Credit and Equity Market Indicators December 16

• Attractive Long Credit Indicators: 94, (+3 from Monday and -6% below the 200-day moving average of all long indicators).

• Attractive Long Credit Market Cap accounts for: 54% of all undervalued Systematic credit capital.

• Attractive Short Credit Indicators 932, (-35 from Monday and +81% above the 200-day moving average of all model short trade indicators).

• Attractive Short Credit Market Cap accounts for: 61% 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 traded in opposite directions with credit spreads unchanged to slightly tighter and US equity prices lower Monday. The two markets have directionally correlated in 16 of the past 22 trading days.

• US equities are +1.5% over the past month; US credit spreads are again 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 16

• Attractive Long G-255 Equity Trade Indicators: 56 (includes both undervalued and equities priced at

extreme discount (-2 from Monday and -22% below the 200-day moving average of all long-trade

indicators).

• Attractive Short Equity Trade Indicators 8, (unchanged from Monday) and -18% to the 200-day moving

average of all model short trade indicators).

• 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) Oracle Corp (ORCL) T-Mobile US Inc (TMUS) Royal Caribbean (RCL) Macquarie Group (MQG AU)

Southern Co/The (SO) Unilever PLC (UNA NA) Kroger (KR)

SoftBank Group Corp ATT (T)

• Equities leaving highest ranked long indicators on Monday: Disney (DIS)

G -255 Issuer News Monday

Ford (FBa1/BBB- short credit/equity) Motor Co. is discontinuing production of the F-150 Lightning EV pickup truck, marking a shift away from pure electric mobility. The company will pivot to hybrids globally but will focus more on low-cost EVs for the U.S. via its Universal EV Platform. Ford will take $19.5 billion in charges related to its EV business, which is proactive and reflects the "new reality" of weak demand and heavily reduced compliance requirements, according to Bloomberg.

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.