Systematic Credit and Equity G-255 Trading Indicators for September 19, 2025
Good Morning! A key measure of US corporate-bond valuations reached the most expensive level in nearly three decades as investors raced to lock in still-elevated yields following the Federal Reserve's first interest rate cut since 2024. No, it's not our credit trading model, and please keep in mind that 7-year and shorter-maturity USD investment-grade (IG) bonds have been trading at multi-decade tight levels for two months. Longer-dated paper? A: Not as much.
At the same time, leverage among the largest USD issuers of corporate debt is at an all-time high. And what is the cash that is being raised by the G-255 (issuers with more than $15 billion of global tradable bonds) funding? Dividend increases and share repurchases at all-time highs.
Our overall credit indicator hit an all-time high in the number of liquid short trade indicators. However, with 140 of the 255 issuers of global corporate bonds adding leverage, there is the potential to hit 1,220, but that would need to come from the BBB auto and certain BBB TMT (INTC) issuers.
Fund flows and US Equity levels
We saw credit fund inflows roughly flat week over week at just over $5 billion, while high-yield inflows to ETFs and mutual funds were just below $2 billion and have been weak for a month.
So where does that leave us? US credit has an 80% directional correlation to USD equities. Non-AI or technology-related equities are overvalued but nowhere near all-time highs. Technology and AI-related USD equities are pulling the entire USD markets higher. So even at all-time index highs, only 74% of the 240 G-255 equities are trading at 2025 highs, and just under 60% are trading at all-time highs.
Credit near peak valuation but not headed materially wider (yet).
Our trading model reduced its long trading component slightly this week. However, until we see credit fund outflows or US equity declines, the model sees only a 78% chance of a +5 bp to +10 bp widening over the next 2 weeks and less than a 5% chance of larger widening.
Fedex (FDX Baa2/BBB) 1Q results (see page 6 for details).
Federal Express reported results last night, and the "overexuberance" in FDX (trading at less than 12.5x earnings) was palpable in aftermarket trading as the company reported 2% unit volume growth and reinstated earnings guidance for F2026 that will finally permit FDX (should everything go well) to earn what it earned in 2021. Still, operating cash flow rose 40% YoY, and the equity closed last night below its 200-day moving average.
New Issue indicator apology and explanation
I need to apologize as to my sloppy transcription on Yesterday ATT new supply Indicators. The model generates two indicators when a G-255 issuer announces new supply:
The first trade indicator determines where new issue pricing leaves a 97.5% probability that the underlying bond will grind at least (-5bp) tighter within the next 22 trading days.
The model then generates a second trade indicator post-new issue pricing. The second trade indicator is the trading level where the model has calculated there is little spread tightening remaining.
We have been asked what factors go into the new issue indicators, so briefly: (1) Whether the issuer is adding or reducing financial leverage, (2) 30-day equity return, (3) where each segment of the issuer's secondary trading curve traded prior to deal announcement, and (4) the 52-week wide and narrow for each issuer maturity sector. Finally, the model adds a sector weighting based on sector balance sheet direction. The above shows the new issue attractive levels for today's AT&T deal. The avoid points for those bonds are shown in the new supply chart on page 4.
US Rail Carloads and GDP
Weekly jobless claims for the week ended September 13 rose 9,000 YoY to 231,000, while the 4-week average remained at 240,000. Regardless of "analyst expectations," the initial claims numbers thus far in September do not point to unemployment improving.
Trading Model Indicators and Strategy for Friday
Our systematic trading model indicates USD high-yield (HY) and investment-grade (IG) credit as overvalued. Inflows into non USD funds are growing, they are growing at a slower pace. Post-Thursday trading, 7-year credit is now the most attractive maturity sector.
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 overvalued with the most likely trading scenario wider over the next 5 – 10 trading days.
Trading Allocation Strategy
47% Long: Undervalued, deleveraging bonds.
33% Short: Overvalued bonds in re-leveraging sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 161 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.31 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.
Thursday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +11.5% above average.
G-255 Issuers: 96 of the top 100 traded issuer bonds accounted for 96% of top 100 issuer volume and 77% of total TRACE volume.
High-Yield (HY) Trading
Volume: 23% above average.
G-255 Issuers: 16 of the top 25 traded bonds accounted for 55% of top 25 issuer volume and 68% of total TRACE volume.
Thursday Credit Market Movement
U.S. CDX Index: -0.8 bp at 47 bp.
U.S. IG Cash Spreads: were slightly tighter, with financials and single A industrials outperforming.
CDX HY Index: rose +.2 to 107.9 (per Bloomberg).
HY Cash Bonds: higher, with BB TMT and Healthcare outperforming.
High-Yield Activity
• Dealers bought $900mm in HY bonds on Thursday.
Most Bought HY Bonds: NGL Energy (NGL B2/B+)
Most Sold HY Bonds: Warner Media (WBD Ba2/BB attractive long)
Investment Grade Activity
Dealers bought $600mm of IG bonds on Thursday.
Most Bought Sector: Single A Industrials
General Electric (GE A3/A-, attractive long)
Deere Capital (DE A1/A attractive short)
Most Sold Sector: BBB TMT
Intel (INTC Baa2/BBB, attractive short)
ATT (T Baa2/BBB attractive long)
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 129 undervalued bonds ($2345 billion), with 46
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,578 bonds ($2.44 trillion) are overvalued per the stochastic credit trading model, with 1187 short trade indicators.
U.S. Big 6 Banks (All Ratings): 306 bonds ($762 billion) overvalued, with 228 short indicators.
Single A and BB Energy: 110 bonds ($182.3 billion) overvalued, with 76 short indicators.
Single A Healthcare: 121 bonds ($174 billion) overvalued, with 98 short indicators.
Single A Industrials: 112 bonds ($123 billion) overvalued, with 101 short indicators.
G-255 Issuer News
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 45% 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 unchanged compared to last year.
Year-to-Date (YTD): Spreads are wider YTD.
UST 10-Year Rates: Up 41 basis points (bp) YoY but down -44 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 ½ weeks, combined with a -10 bp decline in UST 10-year yields since September 1, 2025.
Global Equity Correlation to IG Credit Spreads
US equities correlated directionally with US equity prices movement for a 6th trading day out of 7. USD 10Y credit and equity prices have correlated 142 out of 190 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
As expected we saw mater G-255 USD new supply. Again the supply was led by Yankee issuers. UBS (UBS A2/A-) was the largest transaction printing 5 deals and $5 billion in total. The trading model saw the deal as aggressively priced with -2 to -3bp of spread tightening.
ATT(T Baa2/BBB) sold $ 5 billion of new supply in 4 transaction with their largest deal in 4 years. ATT is de-levering a preparing to buy spectrum licenses from EchoStar(SATS Caa1/B) for over $20 billion with the deal pending. The 7Y, 10Y and 20Y bonds did have attractive trade indicators from our model.
BAT (BATSLN Baa1/BBB+) had its second transaction of 2025 selling $750mm of 7Y bonds that were aggressively priced according to our model.
Wisconsin Electric (WEC A2/A-) who along with DTE (Baa2/BBB) are the only US Utilities with improving balance sheets as of June 30, 2025 sold 5Y bond on Thursday that were also attractively priced.
US fund Mutual Fund flows for the week ended September 17, compared to a week earlier, according to LSEG Lipper.
Short and intermediate investment-grade bonds: $2.18b inflow vs. $2.06b inflow
High-yield notes: $940m inflow vs $1.21b inflow
Treasuries: $1.82b inflow vs. $2.24b inflow
US leveraged loans: $125.2m inflow vs. $160.4 outflow
Mortgage-related: $125.9m inflow vs. $182.1m inflow
IG corp bond ETF inflows fell to $3.356 bil from $3.522 bill
HY corp bond ETF inflows fell to $1.018 bil from $1.036 bill
New USD G-255 supply is now above $100 billion for the month of September.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1187, +77 from Thursday +106% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 46, -6 from Thursday.
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 67% long position hurdle is reached.
Current Status of trading indicators below:
During the last week 4 long trades reached their avoid trading level and was replaced by 3 new issue trade indicators.
Systematic Credit Trading Strategy September 19, 2025
Closed Positions: Over the past week our trading model indicators had 4 bonds that reached their avoid trading levels.
Enter New Longs: on Monday the model added the the RBC (Baa2/BBB) RY 6 ½ 11/24/2085 60nc10 as the next new supply indicator trade. On Wednesday the Model added the Citigroup (A2/BBB+) C FRN 9/11/31. Today the model adds new ATT (Baa2/BBB) T 4.55 11/01/32 and Credit Agricole (A3/A-) ACAFP 4.818 09/25/33.
3. Enter New Short trades: The trading model indicators show adding short trades for each new long added (change from yesterday's trading indicators). Model added Honeywell (A2/A) HON 4 1/2 01/15/34 as the next short trade indicator on Wednesday
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. Friday's Basket Trade long/ short ratio 64.7%
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
New Trade Indicators Friday: The trading indicators for new issue ATT (Baa2/BBB) T 4.55 11/01/32 and Credit Agricole (A3/A-) ACAFP 4.818 09/25/33 were added by our trading model.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 18, 2025)
Total Trades: 161 (1% of total trades).
Performance Summary:
Long Indicators: 119/126 reached avoid-trading levels, tightening by -9.34 bp.
Short Indicators: 27/33 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 9 tightened -1.37 bp.
Remaining Shorts: 6 tightened by -18.51 bp.
Average Spread Movement: ±7.29 bp in the recommended direction.
Success Rate: 91% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (19.77 trading days) below normal.
Federal Express (FDX Baa1/BBB attractive short) Reported 2Q results: Revenue rose 3.5%, Operating earnings +6% YoY
Federal Express reported 1Q "adjusted" earnings that rose 5.6% YoY as domestic shipments rose while non – domestic priority shipments fell. Company had stronger non – priority domestic deliveries than any segment. FDX reinstated f 2026 guidance with revenue seen growing 5-6% YoY. Fedex sees their freight spinoff transaction being completed in 2026.
Results of Operations:
1Q Overall package volume grew 4%
1Q US priority package volume grew 3%
1Q International priority package volume fell -10%
1Q Operating cash flow rose 45% to $1.7 billion.
Financial Position:
1Q Net debt was unchanged quarter-over-quarter but rose $600mm YoY to $15 billion.
1Q Share repurchase was cut in half to $500mm.
1Q Free cash flow flipped to $600m from net cash outflow of -$500mm.
Debt Trading Indicators: Of 25 USD secondary bonds in circulation, only 7 have a market capital of $750 million or more. 3 of the FDX bonds have overvalued trading indicators while just one bond, the FDX 5 1/4 05/15/50 bonds carries a short trade indicator.
Equity Trading Indicators: FDX equity is attractive at its current price of $238 pershare.
Tickers and companies mentioned in this post
FedEx, FDX, Intel, INTC, NGL Energy, NGL, Warner Media,WBD, General Electric, GE, Deere Capital, DE, AT&T, T, UBS, UBS, British American Tobacco, BATSLN, Wisconsin Electric, WEC, DTE, DTE, EchoStar, SATS, Royal Bank of Canada, RY, Citigroup, C, Crédit Agricole, ACAFP,Honeywell,HON
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.