Systematic Credit and Equity G-255 Trading Indicators for September 9, 2025
Good Morning We have been asked to elaborate on the systematic trading model indicators for new G-255 issuance and have prepared this explainer: G-255 New Supply Trading Indicators Explained.
While the French lower house has no confidence in "current management," the financial markets have had their say. That being that neither the FRTR 10Y nor French Bank bonds have moved materially throughout the 2-month process that will (hopefully) lead to the formation of a new government or, if need be, new elections. France is deeply divided politically and has been for years. However, France is also a prominent member of the European Union. This means that if they want the benefits of the Eurozone, there is a fiscal responsibility associated with membership. We have seen these battles transpire in every union member's politics over the years. The simple reason market volatility related to these battles has dissipated over the years is that in all the separate EU republics, at times the only issue each electorate can agree upon is EU membership. Meaning? France will, after the political histrionics, attend to their budget. The FRTR 10Y is higher this AM. The no-confidence impact on USD trading? None – credit underperformed on Monday as the market focus appears to be solely on interest rates.
We have written often about the relationship between inflation expectations and US interest rates. For years, the US Federal Reserve would cite inflation expectations as part of the interest rate setting policy. More recently, the "Fed Speak" has become more broad with statements as to the direction of inflation and Fed policy having the ability to "meet the Fed's stated goal of 2% inflation." The Fed has also intermittently noted that ideally, Fed Policy would be to keep rates 100 bp above core CPI until that number reached 2%.
The issue for both the capital markets and the US Federal Reserve is that there has been no progress over the past 12 months in inflation moving toward 2%. If our calculations are correct, core CPI as of August 31 will be 3.2% (it's possible we see 3.3%), and there would have been no progress either year to date or year over year on reducing the rate of inflation.
The issue for both the capital markets and the US Federal Reserve Bank and that there has been no progress over the past 12 months in inflation moving toward 2%. If our calculations are correct core CPI as of August 31 will be 3.2% (it's possible we see 3.3%) and there would have been no progress either year to date or year over year on reducing the rate of inflation.
Making matters slightly more complicated is that while inflation expectations have been falling, the NY Federal Reserve Bank's 1-year inflation expectations number rose for a second month in August to 3.2% and is now higher YTD and YoY.
Historically speaking, with the exception of what the US Federal Reserve viewed as "extraordinary" external factors (COVID, Euro banking crisis, US mortgage crisis) which created demands on cash that froze the US economy, there have only been two periods (November/December 1998 and December 2000/June 2001) when the Fed cut rates when unemployment was below 4.5%. Also keep in mind that the Fed Funds rate was 5.5% in November 1998 and 6.5% in December of 2000/June 2001) when the Fed cut rates when unemployment was below 4.5%. Also keep in mind that the Fed Funds rate was 5.5% in November 1998 and 6.5% in December of 2000.
From a trading perspective, there is no long-term correlation between the UST 5-year and the US Federal Funds rate. While the UST 5-year has traded both well above and well below 1-year inflation expectations, the two (5Y UST & 1Y inflation expectations) correlate directionally. Additionally, this will be the first time away from the COVID years when the US Fed cut their overnight rate while 1-year inflation expectations were rising.
Conclusion: If 1-year inflation expectations continue to rise, so will UST 5Y yields.
Trading model indicators and trading strategy.
Our systematic trading model indicates USD HY and IG credit as overvalued but not a clear "short" signal. With continued inflows into IG credit, 45 sector indicators point to higher valuations (tighter IG spreads and higher HY prices). However, the model finds 10Y credit attractive over the next three trading days, which is unusual.
Monday credit trading saw material weakness in US Financials.
We note that the systematic trading model identified Single A Industrials, BBB industrials and BBB Energy as attractive short trading sectors 9 weeks ago. The Industrials (both single A and BBB rated) indicators have reverted to over – valued in the past 4 weeks. Post earnings, BBB energy is now attractive long.
Today's Systematic Trading Sector Indicators
Top 3 Short-Indicated Sectors:
• Big 6 Senior Bank Holdco (USD only)
• USD Single A Healthcare sector (USD only)
• European Single A and BB Energy (all currencies)
Top 3 Long-Indicated Sectors:
• UK Banks (all currencies)
• US BBB TMT (USD and EUR)
• French Banks (all currencies)
USD Systematic Trading Model:
This morning's model indicators continue to indicate US credit will tighten or rise in the near term. This despite credit spread widening in 5 of the past 7 trading days and almost $70 billion of new G – 255 supply in just 1 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 154 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.17 bp per trade. Between June 30 and September 6, 2025, 29 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
Inflation expectations at the one-year horizon were higher at 3.2% in August from July's 3.09%, according to the New York Fed's survey of consumer expectations.
Monday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: -3% below average
-G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 75% of total TRACE volume.
High-Yield (HY) Trading
-Volume: +15% above average
-G-255 Issuers: 17 of the top 25 traded bonds accounted for 64% of top 25 issuer volume and 67% of total TRACE volume.
Market Movement
U.S. CDX Index: unchanged @ 49.9bp
U.S. IG Cash Spreads: (+1 to +5bp) wider with US Banks underperforming.
CDX HY Index: unchanged @ 107.3 (per Bloomberg).
HY Cash Bonds: Were higher Monday with HY TMT and Energy outperforming.
High-Yield Activity
- Dealers bought $800 mm of HY bonds Monday.
Most Bought HY Bonds
- EchoStar (SATS Caa1/B attractive long)
Most Sold HY Bonds
- CSC Holdings (CSCHLD Caa1/CCC+ attractive long)
Investment-Grade Activity
- Dealers bought $1.9 billion of IG bonds Monday. That is close to $4 billion in 2 trading days.
Most Bought Sector: BBB TMT
- Broadcom (AVGO Baa1/BBB+ attractive long)
- T-Mobil (TMUS, Baa2/BBB attractive long)
Most Sold Sector: Big 6 banks
- Goldman Sachs (GS A2/BBB+ attractive short)
- 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 ($294 billion), with 96
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,496 bonds ($1.44 trillion) are overvalued per the stochastic credit trading model, with 823 short trade indicators.
U.S. Big 6 Banks (All Ratings): 289 bonds ($730 billion) overvalued, with 138 short indicators. We saw material weakness in this sector on Monday.
Single A and BB Energy: 107 bonds ($177 billion) overvalued, with 68 short indicators.
Single A Healthcare: 115 bonds ($168 billion) overvalued, with 77 short indicators.
Issuer News
Dell Technologies (Dell Baa2/BBB) CFO to retire
Dell Technologies Inc. announced that Chief Financial Officer Yvonne McGill will step down, effective Tuesday, after nearly 30 years with the company. David Kennedy, current Senior Vice President overseeing Dell Global Business Operations and Finance, will assume the CFO role on an interim basis. Dell reaffirmed its financial guidance provided on August 28, 2025.
Dell credit indicator is attractive short. Dell equity indicator is attractive long
Bank of America (BAC A1/A) Presentation at Barclays Financial Conference
Bank of America Corp. Chief Financial Officer Alastair Borthwick stated that the firm's investment banking unit's performance is expected to align with or exceed the current industry fee pool. The trading division is showing mid-single-digit growth compared to the previous year, driven by investors repositioning in active markets.
BAC credit indicator is attractive short. BAC equity indicator is attractive long
SpaceX Acquires EchoStar Spectrum (SATS Caa1/B)
SpaceX has agreed to acquire wireless spectrum from EchoStar Corp. for approximately $17 billion. The deal includes EchoStar's AWS-4 and H-block spectrum licenses for satellite and mobile communications. SpaceX will pay up to $8.5 billion in cash and up to $8.5 billion in SpaceX stock. On Monday, the FCC lifted a regulatory restriction on EchoStar after the company met its mobile network buildout milestones. FCC Chairman Brendan Carr confirmed in a letter to EchoStar Chairman Charlie Ergen that the company's obligations have been satisfied, clearing the path for the spectrum sale.
SATS Debt and Equity indicators are both attractive long.
Anglo American (AALLN Baa2/BBB) in Talks to Acquire Teck Resources
Anglo American Plc is in advanced discussions to acquire Canada's Teck Resources Ltd., with a potential announcement possible this week. The deal, primarily stock-based, would rank among the largest in the mining industry's history and follows a period of increased dealmaking activity. The acquisition, subject to Canadian government approval, could yield efficiencies, such as combining Teck's Quebrada Blanca 2 copper project with Anglo American's neighboring Collahuasi mine.
AALLN Debt and Equity indicators are both attractive short.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 23% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation
The systematic credit trading indicator (Investment Grade and High Yield) remains overvalued. A record 140 of the world's 255 largest corporate debt issuers, the highest in the 34-year history of the trading model, are increasing leverage on their balance sheets.
2025 10-Year Credit Spreads
Year-over-Year (YoY): 10-year credit spreads are wider compared to last year.
Year-to-Date (YTD): Spreads are also wider YTD.
UST 10-Year Rates: Up 36 basis points (bp) YoY but down 51 bp YTD.
Spread Widening: The Bloomberg/Moody's 10Y index shows wider spreads due to new bond supply at elevated levels over the past week, combined with a 22 bp decline in UST 10-year yields over the last five trading days.
Global Equity Correlation to IG Credit Spreads
USD credit and US equities failed to directionally correlate for the 7th trading day in 13. USD credit investment grade credit was wider while High Yield was unchanged Monday. US equities were higher. USD 10Y credit and equity prices have correlated 136 out of 181 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
On Monday, 10 G–255 issuers sold 25 bonds totaling $21.85 billion. Wells Fargo (WFC A1/BBB+) became the second Big 6 bank in two days, following Citigroup (last Thursday), to issue debt in the post-Labor Day period. Wells Fargo issued $11 billion in debt across six tranches over three trading days, while Capital One (COF Baa1/A-) issued $2.75 billion. This significant issuance appeared to pressure U.S. financial issue trading.
In July, we noted that it is rare to see six G–255 issuers deleveraging and coming to market within a single week. On Monday, five issuers were either deleveraging or net cash issuers. Additionally, the BBB TMT sector has been the trading model's top attractive long sector indicator for nearly three months. Following recent earnings from Broadcom (AVGO Baa1/BBB+) and Hewlett Packard Enterprise (HPE Baa2/BBB), this indicator remains robust. Despite HPE's releveraging, the BBB TMT sector continues to be the most attractive for spread tightening, according to the trading model.
The trading model indicators showed two new bonds with the most significant spread tightening potential:
Capital One (COF Baa1/A-): COF 5.197 09/11/36
Elevance Health (ELV Baa2/A-): ELV 5 01/15/36
Over the past week, 32 G–255 issuers have issued $67.75 billion of debt across 75 separate transactions, accounting for 8.55% of all G–255 USD debt issued in 2025 to date.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 823, -20 from Monday. All but 3 indicator changes were in banks.
Attractive long indicators: 96, +21 from Monday all in banks.
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 2 long trades reached their avoid trading level and was replaced by 3 new issue trade indicators.
Systematic Credit Trading Strategy September 8, 2025
Closed Positions: last week, the long/short basket trade exited 1 new issue and 1 secondary new trade.
Enter New Longs: On Monday the model added the new Merck (Aa3/A+) MRK 5.7 09/15/55. Tuesday trading indicator adds the Elevance Health (Baa2/A-) ELV 5 01/15/36
3. Enter New Short trades: The trading model indicators show adding short trades for each new long added after the Elevance Health (ELV) position.
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. Monday's Basket Trade long/ short ratio 68.75%
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
Monday Trading Indicators: The new Merck (Aa3/A+) (MRK 5.7 09/15/55 trading @ 74.5 has an attractive long indicator for our trading model.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 8, 2025)
Total Trades: 155 (1% of total trades).
Performance Summary:
Long Indicators: 112/121 reached avoid-trading levels, tightening by -9.47 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 11 widened by +.78 bp.
Remaining Shorts: 5 tightened by -17.23 bp.
Average Spread Movement: ±7.12 bp in the indicated direction.
Success Rate: 90% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.41 trading days) normal.
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.