Systematic Credit and Equity G-255 Trading Indicators for August 25, 2025
The G-255 Trading & Research Universe
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, Jackson Hole recap:
About as expected. Friday trading recap: About as expected. While significant writing space has be devoted to a September 19 Fed rate move, we note there is still another set of employment (almost as "seasonally adjusted as June") and CPI data to be released prior the Sept Fed meeting.
As for Mr. Powell, in his 7+ years at the helm, quantitatively speaking he has been the 3rd most successful Chair behind Janet Yellen and William Martin in the modern Central Bank Era. How do we get to that conclusion? A: Take the number of earned runs, multiply by 9 … Oops, sorry. Take annual GDP growth for the term add equity and bond market returns and divide by the product of negative GDP years and combined risk market volatility.
Market Credit Indicators – Still Tighter
While Friday's trading puts the trading indicators for the 248 equities of the the world's largest issuers of corporate debt at fairly valued, we are still about 5% from a market short credit indicator from our systematic trading model. We also note that fund/corporate credit flows point to higher HY and tighter IG valuations for the next 3 trading days.
While capital into US ETFs and mutual funds since May is strong – it's very strong into short and intermediate funds.
As we broke down our stochastic trading model into all 5 data hierarchies in Friday's report, we point to only the largest data fact: In all three hard currency corporate bond markets, the world's 53 largest banks account for 25 to 40% of any index capitalization. We have been recapping and providing the model's overall bank sector indicators and as we come to the close of earnings season, we note that whether the investment object is "Long / Only, "Derivative Credit Trading" or "Long / Short" if the strategy behind bank trading isn't sound, outperforming any benchmark becomes a major challenge.
So as we wait for the Canadian banks to share results this week, we have recapped and provided earnings digests for all of the major bank sectors with the exception of Canadian and US regional banks. Those summaries will come this week and the final sector credit indicators for all 7 bank sectors will be published after the Labor Day weekend. Clearly, the second most important sector after banks in the US corporate market is TMT.
The numeric and $ trading indicator for all 45 sectors is listed on page 1.
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 short indicated sectors.
USD Systematic Trading Model:
This morning's model indicators suggest credit will continue to tighten or rise in the near term.
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 144 long/short trades in 2025 (marked via TRACE), 92% achieved ±5 bp targets, averaging ±7.52 bp per trade. Between June 30 and August 19, 2025, 26 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.
Inflation, Economic Data, and Interest Rates
Total carloads for the week ending August 16 were 228,884 carloads, down -0.9% compared with the same week in 2024, while U.S. weekly intermodal volume was 284,086 containers and trailers, down -0.6% compared to 2024.
Friday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: -16% below average
-G-255 Issuers: 97 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: -25% below average
-G-255 Issuers: 10 of the top 25 traded bonds accounted for 35% of top 25 issuer volume and 30% of total TRACE volume.
Market Movement
U.S. CDX Index: -2.5 @ 49.2bp
U.S. IG Cash Spreads: were (-1 to -3bp) tighter to with IG Financials outperforming.
CDX HY Index: +.6 @ 107.5 (per Bloomberg).
HY Cash Bonds: Healthcare outperformed and BB Financials were lower Friday.
High-Yield Activity
- Dealers bought $350mm of HY bonds Friday.
Most Bought HY Bonds
- Jet Blue (JBLU B2/B+)
Most Sold HY Bonds – None that exceeded $25mm
-
Investment-Grade Activity
- Dealers bought $150mm of IG bonds Friday.
Most Bought Sector: Big 6 banks
- Wells Fargo (WFC A1/BBB+ attractive short)
- Bank of Americal (BAC A1/A attractive short)
Most Sold Sector: Single A TMT
- Eli Lily (LLY, Aa3/AA- attractive short)
- Gilead (GILD, A3/A- 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 143 bonds ($198.5 billion) are considered undervalued by the stochastic credit trading model, with 46 attractive long trade indicators for the entire 6,000 USD bond universe.
Short Opportunities
1547 bonds ($1.742 trillion) are considered overvalued by the stochastic credit trading model with 1016
short trade indicators for the entire 6,000 USD bond universe.
U.S. Big 6 Banks (All Ratings): $719 billion in overvalued market capital across 195 bonds, with 183 short indicators.
Single A Industrials: $123.5 billion, in overvalued market capital across 109 bonds, with 88 short indicators.
Single A and BB Energy $173.5 billion in overvalued market capital across 106 bonds, with 75 short indicators.
Single A Healthcare $170 billion in overvalued market capital across 116 bonds, with 98 short indicators. This is 20% more short indicators for this sector than in November 2024.
Issuer News
Keurig Dr Pepper Inc (KDP Baa2/BBB attractive short) is close to a deal to acquire JDE Peet's NV for about $18 billion.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 33% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: Our systematic credit trading indicator is overall US credit market (IG and HY) is overvalued. 139 of the world's 255 largest issuers of corporate debt, are adding leverage to their balance sheets.
2025 10 - year credit spreads: are wider YoY and YTD.
UST 10Y rates are +47 bp higher YoY and -30 bp YTD
Global Equity Correlation to IG Credit Spreads
U.S. IG credit spreads, HY prices and U.S. equity prices continue to correlate as US equities were lower and US IG spreads were higher and US high yield bonds were higher.
New USD G-255 supply and fund flow data
We erred when reading the Systematic Trading Model Indicators McDonald's (MCD Baa2/BBB attractive short) new G – 255 supply last Tuesday. The issuer is not de-levering or re-levering. To be clear, it was human error, not a computer issue. Since MCD is not de-levering we have adjusted the attractive points on to re-levering trade indicators on that new issue.
As we noted last week there was just less than $70 billion of G-255 in month of August with none expected in the coming week.
Based on inflows of $22 billion (Investment-Grade) and $1.5 billion (High-Yield), combined with $37 billion in G-255 bond retirements and $165 billion in coupon interest, net G-255 buying is expected to continue before the end of August.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1049, +25 from Friday AM. The systematic credit market indicator remains overvalued.
Attractive long indicators: 51, up 5 from Friday, now within 20% of the "attractive short" overall credit market indicator.
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 38 days, 24 long trades reached their avoid trading levels and were replaced by 9 new issue and new short trade indicators.
Systematic Credit Trading Strategy August 25, 2025
Closed Positions: Over the past week, the long/short basket trade exited 5 new issue trades.
Enter New Longs: Over the past 2 week, the model indicator added 6 new issues:
3. Enter New Short trades: The trading model indicators show adding at least 3 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. Monday's Basket Trade long/ short ratio 66%
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
With no new supply expected next week – The trading model added to the (1) McDonald's (Baa1/BBB+) MCD 4.4 02/12/31 and (2) Deutsche Bank NY (Baa1/BBB) DB 4.95 08/04/31 with both issues trading behind new issue spread at Thursday's close.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – August 22, 2025)
Total Trades: 148 (1% of total trades).
Performance Summary:
Long Indicators: 109/113 reached avoid-trading levels, tightening by -9.57 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 7 tightened by -1.76 bp.
Remaining Shorts: 5 tightened by -17.25 bp.
Average Spread Movement: ±7.55 bp in the recommended direction.
Success Rate: 93% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.5 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.