Systematic Credit and Equity G-255 Trading Indicators for September 2, 2025
What we do: Our trading model provides both high level and individual bond trading indicators that are used as risk management tools and for generating daily credit trades. This model produces 12,400 trade indicators daily, covering 6,200 bonds. The "Global 255" corporate issuer systematic credit trading research universe encompasses over 6,200 bonds representing $6.5 trillion in USD market capital. These bonds dominate the market, accounting for more than 75% the daily investment-grade (IG) corporate bond trades reported on TRACE.
Good Morning, welcome back!
Weekend Trading Indicators and Observations
Alibaba (BABA) Earnings: Strong AI-related earnings were reported on Friday. See page 6 for details.
French Government Bond Curve: Despite a 96% probability of a "no-confidence" vote against the French government next Monday, there was no material movement in the French Government Bond Curve on Monday or early Tuesday. French OATs are trading slightly above their March lows.
Gold Prices: Gold reached $3,500 per ounce on Wednesday, finally meeting several Wall Street analyst estimates from 2011.
US Treasury (UST) Holdings: Recent headlines noted non-US entities reducing UST holdings.
Capital Flows: Over the past six months, we have not observed significant capital withdrawal from the US. However, there have been stronger inflows into non-US funds and assets.
US Markets: On Friday, US credit spreads, high-yield (HY) prices, and equity prices declined. However, US equities posted positive returns for August. USD-denominated credit, particularly Yankee issuer debt, continues to underperform.
Financial Leverage: Recent headlines align with our model output from several weeks ago, indicating rapidly rising financial leverage among the world's largest US borrowers. Our trading model shows a record 55% of the largest borrowers adding net debt, primarily to repurchase equity and increase dividends. This added leverage is now evident in USD corporate credit spreads.
Single A TMT Sector Analysis
With the Single A TMT earnings season complete, we highlight the largest USD index component differentiating US corporate bond indices from those in other markets.
G – 255 Single A rated TMT 2Q 2025 Operating Metrics
Key Trading Points:
Market Size: USD-denominated Single A TMT bonds total $500 billion (320 issuers) with market capitalization above $700 million. This sector is 50% larger in USD than in any other market.
Earnings Growth: Single A TMT earnings growth is the strongest in five years, with sector operating margins at 26.3%, near a 10-year high.
Revenue: Total revenue for 17 Single A issuers is projected to reach at least $3 trillion in 2025.
Capital Returns: Share repurchasing and dividend payouts are growing at 11% annually, slower than revenue growth.
G – 255 Single A TMT 2Q 2025 Balance Sheet Metrics 10 de-levering, 7 re-levering
G-255 Single A TMT 2Q 2025 Balance Sheet Metrics
De-levering/Re-levering: 10 issuers are de-levering or have more cash than debt.
The Single A TMT sector balance sheet has gone from just less than $200 billion of net cash to $100 billion of net debt in less than 7 quarters.
Roughly 8 of 17 issuers are using balance sheet to return capital to shareholders.
Today's Systematic Trading Indicators
Big 6 subordinated bank Holdco (USD only)
USD Single A Industrial sector (USD only)
European Single A 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 (+5 to +10bp) of credit spread widening in the past trading week.
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 148 long/short trades in 2025 (marked via TRACE), 92% achieved ±5 bp targets, averaging ±7.42 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
University of Michigan 1Y inflation expectations for August Fell (-.1) to 4.8%
University of Michigan 5Y inflation expectations for Auguste fell (-.4) to 3.5%
Friday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: +19% above average
-G-255 Issuers: 98 of the top 100 traded issuer bonds accounted for 94% of top 100 issuer volume and 66% of total TRACE volume.
High-Yield (HY) Trading
-Volume: -3% below average
-G-255 Issuers: 12 of the top 25 traded bonds accounted for 51% of top 25 issuer volume and 62% of total TRACE volume.
Market Movement
U.S. CDX Index: +.8 @ 50.9bp
U.S. IG Cash Spreads: Wider for a fifth day (+1 to +4bp) with consumer underperforming
CDX HY Index: -.2 @ 107.2 (per Bloomberg).
HY Cash Bonds: Were lower Friday with Energy and TMT the poorest performing sectors.
High-Yield Activity
- Dealers bought $800mm of HY bonds Friday.
Most Bought HY Bonds
- Viper Energy (VNOM Ba1/BBB-)
Most Sold HY Bonds
- Transdigm (TDG Ba3/BB- attractive short)
Investment-Grade Activity
- Dealers sold $200mm of IG bonds Friday.
Most Bought Sector: Big 6 Banks
- JP Morgan (JPM A1/A attractive short)
- Bank of America (BAC A1/A attractive short)
Most Sold Sector: Energy
- MPLX (MPLX Baa2/BBB attractive long)
- Chevron (CVX, Aa2/AA- attractive short)
Attractive Trading Sectors
Long Opportunities
Floating Rate Notes of de-levering issuers, Single A rated global Autos, BBB TMT, BBB Energy, and Euro Yankee Banks. Overall model indicators 218 bonds ($323 billion) are considered undervalued by the stochastic credit trading model, with attractive 91 long trade indicators for the entire 6,000 USD bond universe.
Short Opportunities
1466 bonds ($1.19 trillion) are considered overvalued by the stochastic credit trading model with 695
short trade indicators (-364 WoW and -246 MoM).
U.S. Big 6 Banks (All Ratings): $740 billion in overvalued market capital across 296 bonds, with 94 short indicators (79 fewer WoW).
Single A Industrials: $118 billion, in overvalued market capital across 105 bonds, with 56 short indicators (-30 WoW).
Single A and BB Energy $174 billion in overvalued market capital across 97 bonds, with 70 short indicators.
Single A Healthcare $179 billion in overvalued market capital across 123 bonds, with 71 short indicators.
Issuer News
Nestlé SA NESVNX (Aa/AA- attractive short) and NESN SW (attractive short) dismissed Chief Executive Officer Laurent Freixe due to an undisclosed workplace affair that violated the company's code of conduct. Nestle equity is down (-17%) YoY.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 29% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: Our systematic credit trading indicator (IG and HY) remains overvalued. 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.
Front end USD credit spreads are no longer near all – time tights.. Longer dated Moody's Baa credit spreads are only modestly tighter from April wide levels.
2025 10Y credit spreads: are wider YoY and YTD.
UST 10Y rates are +35 bp higher YoY and -32 bp YTD
Global Equity Correlation to IG Credit Spreads
US 10 Y investment grade credit spreads widened, US high yield prices were lower while the SPX and US Dow both declined Friday. It was just the second trading day last week where US credit and equity risk direction correlated. 10Y credit and equity prices have correlated 133 out of 176 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
Net inflows to ETFs totaled $9.97b in the week ended Aug. 26, 2025, Inflows into Mutual Funds totaled $2.7 billion ended Aug. 27, compared to a week earlier, according to LSEG Lipper.
Short and intermediate investment-grade bonds: $1.83b inflow vs. $3.41b inflow
High-yield notes: $707.8m outflow vs. $184.7m inflow
Treasuries: $874.7m inflow vs. $964.3m inflow
US leveraged loans: $530.9m inflow vs. $296.8m inflow
Mortgage-related: $234.7m inflow vs. $712.5m inflow
We are anticipating over $70 billion of new supply this week and had another $9.4 billion (6 bonds ) of G – 255 retirements on over the past 5 days (including the weekend).
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 695, - 364 WoW. The systematic credit market indicator remains overvalued. The number of short indicators = (+35%) than the 200 day moving average.
Attractive long indicators: 91, -4 from Friday.
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:
In the past 45 days, 25 long trades reached their avoid trading levels and were replaced by 10 new issue and new short trade indicators.
Systematic Credit Trading Strategy August 25, 2025
Closed Positions: last week, the long/short basket trade exited 1 new issue trade.
Enter New Longs: Over the past 2 week, the model indicator added 6 new issues. With the BMW 4.5 8/11/30 new issue now +3bp behind new issue spread, the trading model re-enters that trade for a second time.
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. Tuesday's Basket Trade long/ short ratio 62%
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
Tuesday Trading Indicator. With the BMW (A2/A) BMW 4.5 8/11/30 new issue now +3 to NIP, the trading model adds the bond to its long trading indicators a second time.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – August 29, 2025)
Total Trades: 149 (1% of total trades).
Performance Summary:
Long Indicators: 110/116 reached avoid-trading levels, tightening by -9.53 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 7 widened by 3.01 bp.
Remaining Shorts: 5 tightened by -15.43 bp.
Average Spread Movement: ±7.37 bp in the indicated direction.
Success Rate: 92% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.45 trading days) normal.
Alibaba Results from Friday
Alibaba Group (BABA, A1/A+, attractive long both debt and equity) Earnings Summary: Alibaba reported 1Q revenue that rose 2% YoY and operating earnings that fell -3% YoY.
1Q Net income rose 76% YoY.
1Q Cash from operations fell 39% to $2.9 billion.
1Q Net cash outflow was $2.7 billion owing to shareholder returns.
1Q E- commerce revenue rose 10% YoY.
1Q Digital commerce revenue rose 19% YoY.
After the sale of Sun Art and Intime – 1Q revenue rose 10%
Financial Position:
• Alibaba (BABA) has more cash than debt
• Alibaba paid out $5,536 bill in shareholder returns in 1Q 2026 v. $9.72 bil in 1Q 2024.
Company did use balance sheet to repurchase equity and pay dividends (CAD 3.4 billion) in 3Q 2025.
Trading Model Indicator: 13 BABA secondary bonds in circulation have a market capitalization of $1 billion or more. No BABA systematic trading model indicators are undervalued, and no bonds have long trade indicators.
Equity Indicator: The Alibaba (BABA) US ADR is attractive at $118 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.