Systematic Credit and Equity G-255 Trading Indicators for September 16, 2025
Good Morning As markets await the outcome of the US Federal Reserve meeting tomorrow, we observed another day of correlated USD and risk trading, with US equities and credit both posting gains on Monday. US stocks reached all-time highs, and equity valuations for the world's largest issuers of corporate debt are near all-time highs. Corporate bond valuations have not yet hit all-time highs but have edged back above key trade indicators, which suggest a 50% or higher valuation level, along with a 78.5% probability of a +5–10 basis point pullback within the next six trading days.
Despite this, markets lack a clear "catalyst" to drive valuations lower. Recent economic indicators point to a weaker, if not shrinking, US economy, but our trading model requires at least three more weeks of data before signaling a potential GDP decline. Meanwhile, US inflation remains embedded above 3%, with no signs of decline in sight.
Absent a decline in US equities and with few long credit trading indicators flashing warnings, our model anticipates a pullback in credit spreads rather than material widening. We continue to observe incremental capital flows shifting toward non-US securities, though there is no significant asset allocation away from USD-denominated assets.
However, statements from the White House encouraging the US Securities and Exchange Commission to adjust corporate reporting requirements from quarterly to semi-annually caught our attention. Should this change ever materialize, it could serve as the ultimate "catalyst" prompting investment outflows from the US. We assess the probability of such a regulatory shift at less than 5%.
Trading Model Indicators and Strategy for Tuesday
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-Monday trading, 5-year credit is the most attractive maturity sector for the next 3 trading days.
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 may tighten or rise in the next few days prior to widening or falling.
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 159 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.33 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
Empire Manufacturing Survey for September fell to -8.7, down from 11.9 in August. Prices paid were (46.1) while still elevated was the lowest since March.
Monday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: 17% above average.
G-255 Issuers: 96 of the top 100 traded issuer bonds accounted for 94% of top 100 issuer volume and 71% of total TRACE volume.
High-Yield (HY) Trading
Volume: 9% above average.
G-255 Issuers: 12 of the top 25 traded bonds accounted for 61% of top 25 issuer volume and 62% of total TRACE volume.
Monday Credit Market Movement
U.S. CDX Index: -0.8 bp at 47.1 bp.
U.S. IG Cash Spreads: Tighter by (-1 to -4 bp, with Energy outperforming.
CDX HY Index: +0.2 bp at 107.85 (per Bloomberg).
HY Cash Bonds: (-2 to -5bp), with Utilities outperforming.
High-Yield Activity
• Dealers bought $800mm in HY bonds on Monday.
• Most Bought HY Bonds: CHS Community Health (CYH Caa1/B-, attractive long).
• Most Sold HY Bonds: CSC Holdings (Caa1 /CCC+ attractive short).
Investment Grade Activity
Dealers sold $250mm of IG bonds on Monday.
Most Bought Sector: Big 6 Banks
Morgan Stanley (A1/A-, attractive short)
Goldman Sachs (GS, A2/BBB+, attractive short)
Most Sold Sector: US Electric Utilities
Pacific Gas & Elec (PCG Baa1/BBB, attractive short)
Ameren Illinois (AEE A1/A first mortgage 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 162 undervalued bonds ($245.3 billion), with 61
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,574 bonds ($2.45.2 trillion) are overvalued per the stochastic credit trading model, with 1129 short trade indicators.
U.S. Big 6 Banks (All Ratings): 301 bonds ($755 billion) overvalued, with 202 short indicators.
Single A and BB Energy: 107 bonds ($176 billion) overvalued, with 74 short indicators.
Single A Healthcare: 120 bonds ($170 billion) overvalued, with 99 short indicators.
Single A Industrials: 113 bonds ($125.6 billion) overvalued, with 97 short indicators.
G-255 Issuer News
US Department of Transportation Revokes Antitrust Immunity
The US Department of Transportation has withdrawn antitrust immunity for the joint agreement between Delta Air Lines (DAL) Inc. and Grupo Aeromexico. This decision, effective from the start of 2026, will prevent the airlines from coordinating flight planning and pricing.
DAL (Baa2/BBB) debt and equity both have attractive long trading indicators.
Banco Sabadell SA's chairman, Josep Oliu, urged BBVA SA (BBVASM)
to substantially raise its takeover offer after Sabadell's board rejected a $18 billion bid, citing it as inadequate. In an interview published on Monday with Spanish newspaper Expansion, Oliu stated, "An offer with a 30% premium would merit serious consideration by our board." He added that if BBVA increases its bid to this level, Sabadell's board would convene to evaluate the proposal.
BBVASM (Baa2/BBB+ Sr. Non – Pfd rating) debt has an attractive short, equity has an attractive long indicator.
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 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 now tighter compared to last year.
Year-to-Date (YTD): Spreads are wider YTD.
UST 10-Year Rates: Up 42 basis points (bp) YoY but down -53 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 -19 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 Monday. USD 10Y credit and equity prices have correlated 140 out of 187 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
RBC (RY BAA2/BBB) followed Toronto Dominion (TD Baa2/BBB) Friday lead sellinh 60-year non-call junior subordinated bonds on Monday, While the RY deal had a 10 year call both bonds had attractive trading model indicators.
Bank of Montreal (BMO A2/A-) and Santander UK (SANUK Baa1/BBB+) both sold bonds that had attractive long indicators despite the fact that both Yankee Bank issuers are adding net debt to the their balance sheets.
Hyundai Financial (HYNMTR A3/A-) sold its 8th new USD issue of 2025 with 4 trades totaling $2 billion that all had attractive readings from the trading model.
During September 2025 For 2025 in Total
46 G-255 issuers have sold USD debt 280 G-255 USD deals have been sold.
87 individual bonds have been sold 676 individual bonds have been sold.
$85.95 billion has been raised $816.61 billion has been raised.
51% of the capital raised has been non – financial 59% of the cap raised has been non – fin.
We have also seen $24.9 billion of G – 255 bond retirements in September.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1129, +39 from Monday +102% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 69, +8 from Monday.
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 16, 2025
Closed Positions: Last week our trading model indicators showed 4 bonds that reached their avoid trading levels. On Monday 4 more new issue trades reached their reached their levels.
Enter New Longs: Last week the model added 5 new issue trades. Today the model adds the the RBC (Baa2/BBB) RY 6 ½ 11/24/2085 60nc10 as the next new supply indicator trade.
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. Tuesday's Basket Trade long/ short ratio 64%
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 Indicators: Merck (Aa3/A+) MRK 5.7 09/15/55. Elevance Health (Baa2/A-) ELV 5 01/15/36. Mitsubishi Fin (A1/A-) MUFG 5.188 09/12/36, Deutsche Bank NY (Baa1/BBB) DB 4.95 08/04/31 all reached their avoid trading levels on Monday.
Today the model adds the the RBC (Baa2/BBB) RY 6 ½ 11/24/2085 60nc10 as the next new supply indicator trade.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 15, 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 -3.15 bp.
Remaining Shorts: 5 tightened by -21 bp.
Average Spread Movement: ±7.33 bp in the indicated direction.
Success Rate: 90% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (19.77 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.