Systematic Credit and Equity G-255 Trade Indicators for September 15, 2025
US IG remains Overvalued, US HY remains slightly overvalued, G - 255 equities are overvalued
No indicator is at an extreme point (i.e. short only/long only)
Overall short credit indicators are above 1,000 for the fourth time in 2025
Single A Industrials are now the most attractive short sector
Trade allocation remains 20% FRN, 50% long de-levering credit, 30% short de-levering credit
Good Morning While IG credit improved on Friday, overall HY credit remained unchanged, a strong result given the rise in 5–10 year yields. Trading volumes were 20% above normal. Our trading model showed six major indicator changes overnight from Thursday to Friday. This morning, we observe nearly 100 additional short-trade corporate bond indicators, while G-255 equities are overvalued.
Depending on fund flow data (positive for high yield, lighter for investment grade last week) released Wednesday and Thursday, the next key indicator could point bearish for credit. We caution that credit valuations for the 255 High Yield and Investment Grade issuers are close to extreme levels but have not yet reached them.
Inflation, initial jobless claims, and the University of Michigan Consumer Sentiment Survey all suggest an economic slowdown, lower employment, and stable or rising prices. However, there are insufficient readings for our trading model to change its indicator.
Trading Model Indicators and Strategy for Monday
Our systematic trading model indicates that USD high-yield (HY) and investment-grade (IG) credit are overvalued. Continued inflows into IG credit, combined with 45 sector indicators, suggest higher valuations (tighter IG spreads and elevated HY prices). Post-Friday trading, the model identifies 5-year credit as the most attractive maturity sector for the next week.
Today's Systematic Trading Sector Indicators
Top 3 Short-Indicated Sectors:
Big 6 Senior Bank Holdco (USD only)
USD Single A Healthcare (USD only)
Single A Industrials (all currencies)
Top 3 Long-Indicated Sectors:
US Regional Banks (USD)
US BBB/BB TMT (USD and EUR)
UK Banks (all currencies)
USD Systematic Trading Model
This morning's model indicators suggest US credit will tighten or rise in the near term.
Trading Allocation Strategy
50% Long: Undervalued, deleveraging bonds.
30% Short: Overvalued bonds in re-leveraging sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 150 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.24 bp per trade. Last week, US corporate bond ETFs and mutual funds saw smaller inflows for investment-grade bonds, while high-yield inflows flipped to positive.
Risk Management
The model avoids adding risk to G-255 issuers reporting within 30 days, as global regulatory requirements for reported material events could impact trading without notice.
US Economic Indicators / Inflation and Interest Rate Outlook
The preliminary University of Michigan Consumer Sentiment Survey for September fell to 55.4, down from 58.2 in August.
1-year inflation expectations remained at 4.8% MoM.
5–10-year inflation expectations rose to 3.9% from 3.5% in August.
Friday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: 20% above average.
G-255 Issuers: 98 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 74% of total TRACE volume.
High-Yield (HY) Trading
Volume: 21% above average.
G-255 Issuers: 13 of the top 25 traded bonds accounted for 64% of top 25 issuer volume and 67% of total TRACE volume.
Friday Credit Market Movement
U.S. CDX Index: +0.2 bp at 47.9 bp.
U.S. IG Cash Spreads: Tighter by -1 to -3 bp, with US banks outperforming.
CDX HY Index: -0.05 bp at 107.65 (per Bloomberg).
HY Cash Bonds: Unchanged, with US financials outperforming.
High-Yield Activity
• Dealers bought $400 million in HY bonds on Friday.
• Most Bought HY Bonds: Dish (DISH Caa1/CCC+, attractive long).
• Most Sold HY Bonds: CoreWeave (CRWV B1/B).
Investment Grade Activity
Dealers sold $2 billion of IG bonds on Friday.
Most Bought Sector: Big 6 Banks
Citigroup (A2/BBB+, attractive short)
Goldman Sachs (GS, A2/BBB+, attractive short)
Most Sold Sector: BBB TMT
Oracle (ORCL Baa2/BBB, 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 150 undervalued bonds ($227.1 billion), with 61
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,558 bonds ($2.41 trillion) are overvalued per the stochastic credit trading model, with 1080 short trade indicators.
U.S. Big 6 Banks (All Ratings): 299 bonds ($747.4 billion) overvalued, with 175 short indicators.
Single A and BB Energy: 108 bonds ($180 billion) overvalued, with 75 short indicators.
Single A Healthcare: 118 bonds ($171.5 billion) overvalued, with 94 short indicators.
Single A Industrials: 112 bonds ($124.7 billion) overvalued, with 91 short indicators.
G-255 Issuer News
None over the weekend
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 30% 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) is back to 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 47 basis points (bp) YoY but down 48 bp YTD.
Spread Widening: The Bloomberg/Moody's 10Y index shows wider spreads due to new bond supply at elevated levels over the past 2 weeks, combined with a 15 bp decline in UST 10-year yields since September 1, 2025.
Global Equity Correlation to IG Credit Spreads
US equities correlated directionally with credit (IG and HY) outperforming US stocks on Friday. USD 10Y credit and equity prices have correlated 139 out of 186 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
Toronto Dominion (TD Baa2/BBB) sold 60-year non-call junior subordinated bonds on Friday, flagged as attractive long by the trading model's indicator.
In the week ended September 10, 2025, ETF + Mutual flows showed the following comparisons
Investment-grade ETFs and Mutual fund inflows dropped by -$870mm to $6.29b,
High-yield ETFs and Mutual fund inflows swung by $4.61b to $3.26b
Thus far in September 39 G -255 issuers have sold $78.7 billion (87 bonds) of new supply. 55% of the supply has been non – financial. YTD totals now stand at 276 G - 255 deals with 66 bonds total $803 billion. This is 9% lower than the same week in 2024. We have also seen $18.7 billion of G – 255 bond retirements in September. In the week ended September 10, 2025:
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 987, +93 from Friday +93% above the 200 day moving average of the short trading recommendations.
Attractive long indicators: 61, -12 from Friday.
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Focus on deleveraging new issues with attractive valuations, targeting 5-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 5 long trades reached their avoid trading level and was replaced by 5 new issue trade indicators.
Systematic Credit Trading Strategy September 15, 2025
Closed Positions: Last week our trading model indicators showed 4 bonds that reached their avoid trading levels.
Enter New Longs: Last week the model added 5 new issue trades.
3. Enter New Short trades: The trading model indicators show adding short trades for each new long added after the closed out are replaced.
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 70.5%
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: No new trades.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 12, 2025)
Total Trades: 159 (1% of total trades).
Performance Summary:
Long Indicators: 115/126 reached avoid-trading levels, tightening by -9.42 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 12 tightened -1.6 bp.
Remaining Shorts: 5 tightened by -20.11 bp.
Average Spread Movement: ±7.24 bp in the indicated direction.
Success Rate: 90% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.1 trading days) below 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.