Reports Library
Fri, June 6, 2025

Systematic Credit and Equity G-250 Trading Indicators for June 6, 2026

Thursday's risk trading was again influenced by Trump White House rhetoric and U.S. employment speculation, but our credit trading model was more significantly impacted by weekly inflow data, particularly retail credit fund flows. This data affects the model's ability to adjust net corporate short asset allocations. As of this morning, the model indicates a slightly overvalued US market, with metrics suggesting attractive opportunities in long positions for deleveraging issuers' new supply.

Thursday's U.S. employment and earnings data highlighted a potential economic slowdown and rising core inflation, as reported yesterday. Speculation about the "worst-case" tariff impacts on U.S. economic growth, inflation, and corporate earnings being past remains just that—speculation. Comparisons between the 2025 U.S. economy and the UK post-Brexit economy in 2016 reveal some relevant data points. However, differences in economic size, foreign investment levels, import/export dynamics, non-sovereign corporate revenue, and imported capital flows distinguish the two economies significantly.

Our approach remains focused on quantitative data, and our trading model avoids forecasting. It relies solely on publicly available information, structured around five key data hierarchies, prioritizing: (1) supply and demand for USD, EUR, and GBP credit; (2) local inflation, employment, and interest rate data; and (3) capital flows and formation in these markets.

Quantitatively, the current U.S. economic environment shows similarities to the UK not due to tariff speculation or public headlines but to immigration enforcement and announced layoffs by major corporations, including Microsoft (MSFT), Meta (META), Intel (INTC), Amazon (AMZN), Walmart (WMT), Hewlett Packard (HPQ), Chevron (CVX), and Procter & Gamble (PG). Unlike the 2016–2025 Brexit-related layoffs in the UK, which primarily affected unskilled labor due to immigration policy changes, U.S. layoffs involve a mix of skilled and unskilled workers.

In the UK, immigration enforcement costs from 2016 to 2019 (pre-COVID) tripled inflation and labor costs before the final Brexit agreement in 2020. Quarterly GDP growth declined from 0.5% to 0% by the end of 2019, recovering only in Q1 2024. However, the U.S. is unlikely to face the same challenges as the UK hospitality sector, where labor shortages led to reduced operating hours. Instead, the U.S. economy faces risks in goods transportation (an area where the UK still struggles) and staffing for high-level IT/AI, advanced services, and manufacturing roles, particularly with new requirements for documenting qualified immigrants. Recent headlines about non-U.S. nationals at U.S. universities suggest that limiting their post-graduation employment opportunities could increase labor costs and influence capital allocation decisions for U.S. operations. In recent weeks, 32 retail chains announced 15,000 store closures, and several non-U.S. brands, including HSBC last week, confirmed the closing of their U.S. retail bank operations.

Amid the current "Trump show," headlines often overshadow data. While markets anticipate a Federal Reserve interest rate cut at the September meeting, driven by Wednesday's weaker-than-expected ADP report, forthcoming data is likely to have a greater impact on the Fed's decision.

So while today's non - farm payroll data will impact how the markets trade today and bring a response from our systematic credit trading model Monday, this is the first data of what will be a multi-year, not several month response by major corporations and risk markets to both implemented and proposed US policy.

Inflation, Economic Data, and Interest Rates

Weekly jobless claims fell to 247,000 for the week ending May 30, 2025, compared to 253,000 for the same week in 2024. The four-week moving average rose to 235,000 from 222,000 a year earlier. Continuing claims increased to 1.904 million for the week of May 23, 2025, up from 1.729 million in the same week of 2024. These figures suggest an unemployment rate of 4.3% to 4.4%, to be reported this morning.

The U.S. trade deficit narrowed by 55.5% in April 2025 to $61.6 billion, the smallest since 2023, driven by a record 16.3% decline in imports and a 3% increase in exports. This is expected to positively contribute to second-quarter GDP.

U.S. non-farm productivity declined by 1.5%, marking the first drop in three years. The price deflator rose to 3.5%, the highest since Q1 2023, while unit labor costs increased by 6.6%, up 220 basis points year-over-year.

May light-vehicle sales totaled 15.65 million on a seasonally adjusted, annualized basis, down from 17.27 million in April. Sales of cars and light trucks fell 9.4% month-over-month (compared to a 2.8% decline in April) and were down 1.6% year-over-year (compared to a 9.7% increase in April).

Earnings Season Insights

Broadcom (AVGO) reported today, forecasting significant quarter-over-quarter revenue growth, though below equity analyst expectations. Unlike many firms accumulating debt to fund shareholder returns, Broadcom generates sufficient cash to support dividend growth and share repurchases. According to Bloomberg Intelligence, revisions to forward estimates in Q2 2025 have been cut at the steepest rate in two years, with company outlooks the weakest since 2010. Target Corp. reduced its sales forecast, and Ford Motor Co. suspended its 2025 financial guidance. Despite these challenges, U.S. equity prices remain near all-time highs.

Our model recently issued attractive long indicators for 16 issuers in the UK, Japan, Canada, and France. These four banking groups collectively hold $510 billion in net cash, representing 24% of the largest global issuers' balance sheet debt and 50% of their liquidity. These deleveraging banks, with more cash than debt, are overweighted in our model, while U.S. and most Australian bank bonds are attractive shorts at tighter spreads.

We will update credit quality, deposit, and bank capital ratios for all banks next week.

Globally, the largest corporate debt issuers hold $11 trillion in liquidity against $17.2 trillion in debt. However, 41 non-U.S. banks have $7 trillion in liquidity versus $7.16 trillion in debt and $21 trillion in deposits. The remaining 192 issuers, including U.S. banks, have $4 trillion in liquidity against $10 trillion in debt—a ratio that is deteriorating rapidly.

Thursday's US Investment-Grade and High Yield Credit Trading

Trading volume was 21% below average. G-254 issuers accounted for 84 of the top 100 traded bonds, representing 88% of top 100 issuer volume and 67% of total TRACE volume.

  • Market Movement:

    • U.S. CDX Index was unchanged @ 55.5bp.

    • U.S. IG cash spreads ranged from +1 basis point to +3bp wider.

    • U.S. financials and industrials outperformed for a second day while consumer underperformed.

Dealers purchased over $1 billion in high-yield bonds for the third consecutive day, with Venture Global (VNLNG), Rivian Holdings (RIVHOL), and Iron Mountain (IRM) being the most net sold. Dealers also sold $110 million of EchoStar (SAT) and DISH (DISH) bonds following an S&P note indicating DISH has sufficient cash to cover missed coupon payments on deferred bonds. Both issuers were short indicators prior to EchoStar's coupon delay.

Dealers sold $1 billion in investment-grade bonds. Oracle (ORCL, currently a trading short in our model), which reports results next week, was the most purchased by end users. Verizon (VZ, attractive long) and Macquarie (MQGAU, new issue attractive long) were the most sold issuer bonds.

Attractive Trading Sectors

Long Opportunities

  • None – there are only 265 bonds considered undervalued ($403 billion) and 74 considered attractive long trading indicators ($104.8 billion) by our trading model

Short Opportunities

  • U.S. Big 6 Banks (All Ratings): $624.5 billion in overvalued market capital across 242 bonds, with 48 short indicators.

  • Energy (All Ratings) : $194.4 billion in overvalued market capital across 134 bonds, with 66 short indicators.

  • BBB TMT: $174.7 billion in overvalued market capital across 103 bonds, with 26 short indicators.

  • Single A Healthcare: $114.5 billion in overvalued market capital across 80 bonds, with 22 short indicators.

Issuer News

  • UBS (UBS): The Swiss government will publish a public consultation on banking stability on Friday, potentially requiring UBS to hold up to $25 billion in additional capital.

  • Ford Motor Co. (F) and General Motors Co. (GM): Equity prices for Ford and GM fell 3.7% and 4.1%, respectively, this week, following the U.S. announcement of 50% tariffs on imported steel and aluminum. Both issuers are considered attractive shorts by our trading model at tighter spreads but have been net purchased by end users over the past week.

U.S. IG Credit Valuation and Spreads

Bloomberg's index incorporates new bond supply in a non-systematic, non-mathematical manner, resulting in inconsistent short-term spread readings. On Thursday, several single-A rated bids in U.S. banks, TMT, and energy sectors widened by 2 to 5 basis points. Combined with weekly credit fund inflows, this spread movement shifted our model's valuation indicator to modestly overvalued.

Global Equity Correlation to IG Credit Spreads

On Thursday, U.S. equities and investment-grade (IG) credit spreads were unchanged to 4 basis points wider, with index measures aligning with U.S. equity returns. We have identified key quantitative factors contributing to credit's relative underperformance compared to equities in 2025: (1) Technology accounts for 31% of S&P 500 market capitalization but only 8% of global top issuer debt. (2) Year-over-year non-U.S. corporate bond purchases are down approximately 44%. (3) Year-to-date retail inflows, even after last week's significant inflow, total only $12 billion, 47% below inflows for the same period in 2024.

New Supply / Bond Maturities / Credit Fund inflows for June

U.S. high-grade bond funds recorded their largest weekly inflow of 2025, with investors injecting over $4 billion into investment-grade bond funds for the week ending June 4. High-yield funds attracted nearly $1.5 billion in inflows, while leveraged loan funds saw $44.7 million, down from the prior week.

.

Delta Airlines (DAL, Baa2/BBB): Delta issued $2 billion in 3-year and 5-year fixed-rate bonds, $1 billion each, marking its first new supply in 4.5 years and the first holdco paper sold in 5.5 years. These are the third and fourth new USD issuances of $1 billion or more by the 254 largest corporate debt issuers in June.

In Europe, no new G-254 supply was issued on Thursday.

Systematic Trading Model Indicators and Trading Strategy - Friday

This morning's model output:

  • 329 attractive short indicators, -80 from Thursday AM with 80% of the indicated changes coming in single A rated credit.

  • 74 attractive long indicators, +3 from Thursday.

  • Of over 6,000 bonds in our research universe, 403 are trading near their 52-week tight or wide spread levels—28% below normal and 24% below the threshold for initiating short positions.

Systematic Trading Strategy for Friday June 6

Strategy: Model reverts to prior trading strategy. Prioritize long positions in de-levering new issues with compelling valuations. Do not add shorts until attractive short trading recs now over 400. With inflows over $4 billion in last week, the model suggest on shorting 1 bond for each bond added long.

Systematic Credit Indicators

Our 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 managing volatility risk.

Most Recent Model Trading Indicators

  • Union Pacific (UNP, A3/A-) UNP 5.6 12/1/54 is 1 of 10 new issue model indicators published prior to February 23, 2025 that has not reached its avoid trading level.

  • Today the trading model adds the new Delta (Baa2/BBB-) new DAL 5.25 7/10/30 @ new issue spread.

Sample Trade Performance Since January 4, 2025 (110 trades, 1% of total indicators):

  • 63/84 long indicators reached avoid-trading levels, tightening by -10.44 bp.

  • 24/28 short indicators reached avoid-trading levels, widening by +5.3 bp.

  • 21 remaining longs widened by +1.62 bp.

  • 4 remaining shorts tightened by -3.5 bp.

  • Average spread movement: ±6.69 bp in the indicated direction.

  • 79% of indicators reached avoid-trading levels (11% below normal).

Since May 15, twelve long indicators hit avoid-trading levels, contributing -1.4bp of overall spread tightening to the 63 long trades. Overall performance of all trades has improved from +/- 4.91 bp to +/- 6.69 on 110 sample trades.

Issuers reporting Thursday:

Broadcom (Baa1 / BBB+)

Q2 Results: Revenue reached $15 billion, up 20% year-over-year (YoY), with operating income at $5.8 billion, up 58% YoY. Net income more than doubled YoY. The company forecasts $15.8 billion in revenue for the fiscal third quarter, also up 20% YoY, and noted that AI demand remains strong but is not accelerating. Despite being one of the stronger forecasts among BBB-rated TMT issuers, Broadcom's equity declined following the earnings conference call.

Financial Position: Net debt decreased to $6.3 billion, down from $57 billion YoY. The company has over $5 billion in short-term debt due within the next six months but holds more than $9 billion in cash and short-term investments. Returns to shareholders, including dividends and share repurchases, grew 42% YoY to $7 billion in 2025. Broadcom is one of the few companies generating sufficient free cash flow to cover these returns.

Model Trading Indicators: Of 33 liquid USD Broadcom secondary bonds, two are undervalued, with one attractive long indicator: the AVGO 5.2% 04/15/2032/31 bond. Broadcom equity is not considered an attractive long at last night's closing price.

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.