Reports Library
Thu, July 10, 2025

Systematic Credit and Equity G-255 Trading Indicators for July 10, 2025

Systematic credit trading overview and model indicators

Good Morning, Earnings Season Has Begun—And Yes, I Botched the Dates

Look, I'm not perfect, alright? Delta (Baa2/BBB-, still a juicy long) reports July 10, not July 9 as I previously claimed. Like any stellar trader, I'll choke out the admission: "I was wr… err, wrr… fine, I flubbed the date in my earnings diary." Moving on.

Wednesday was only the 6th trading day in 56 where US credit spreads dared to defy equity gains, and—surprise, surprise—we saw ETF corporate bond credit outflows. That flipped the systematic credit trading model weights quickly pulling back from an 80% net long position (see below) and poised for another change this afternoon.

Market metrics and systematic trading output, US equity prices and credit valuations can play tug-of-war for up to four months before they continue their long – term correlation. However, cash inflows and outflows move valuations around in a few days as the marginal buyer drives corporate bond prices more than any other risk market.

The new $11.5 billion, 7-tranche NTT deal has apparently "cleared the market," much like the Mars deal in March, except to a lesser extent will have an impact for several weeks. Managed funds, will take time nudging their NTT position closer to market weight in USD—nearly double what it was at the month's start. Because of a similar EUR offering on Wednesday, the NTT position adjustment will most likely last the rest of the month of July.

The June Fed minutes? Not as "mixed" as market strategists may want you to think. They translate pretty cleanly to the current UST market's steepness (2Y-10Y UST yield = 49 bp) and 10Y UST yields (-23.7bp YTD, +11bp YoY). The UST curve's shape and the lack of consensus in the actual minutes clearly show "absent if labor market conditions or economic activity were to weaken materially, or if inflation were to continue to come down and inflation expectations remained well anchored, then it would be appropriate to establish a less restrictive stance of monetary policy than would otherwise be the case." Translation? Fed rates will change after employment and or inflation rates change, not before.

The age old adage is to avoid sports analogies like the plague, but we're barely in the third inning of this nine-inning trade tariff game. June US CPI data will be announced July 15 (and yes, I triple-checked that date).

Put frankly: the US economy runs on foreign investment. Non-USD direct investment is a measly 2% of GDP, but "foreigners" (as certain people call non – US entities) hold 18% of US equities, 33% of USTs, and 27% of US corporate debt.

On the quantitative and credit trading model front, tariffs have materially trimmed-US capital inflows. US capital outflows? Barely a blip. To borrow a completely unacceptable movie metaphor, as Forrest Gump would say, "That's all I have to say about that."

I've been careful about spouting off about trade tariffs as from my perspective it's a fool's errand since the only hard data we've got is the drop in international capital inflows. But, as the saying goes, "Be careful what you wish for with trade tariffs—you might just get it." And with that, I've apparently swung at three metaphors in one at-bat, so I'm out. Time to shut up.

Inflation, Economic Data, and Interest Rates

  • UST 10Y Auction Reopening: Awarded at 4.362%, ~0.3bp below when-issued levels. Primary dealer awards increased to 10.9% (up from the prior 10Y auction). Indirect bidder awards fell to 65.4%, while direct bid awards rose to 23.7%. Historically, indirect bid numbers significantly influence market movements, as observed on Wednesday.

  • Yields:

10-year yield decreased 6.4bps to 4.338%.

30-year yield decreased 5.7bps to 4.871%.

  • Inflation Expectations: New York Fed's Survey of Consumer Expectations reports one-year inflation expectations dropped to 3.02% in June (from 3.20% in May), the lowest since January.

  • Retail Sales (Johnson Redbook):

Same-store sales for the week ending July 5 rose 5.9% year-over-year.

Month-to-date sales (through July 5) up 5.1%.

June sales projected to increase 5.7% compared to June 2024.

Systematic Trading Model Insights and Trading Strategy (July 10, 2025)

The Systematic Trading Model analyzes data for over 6,000 bonds, with 655 currently within 20% of their 52-week tight or wide spread levels (19% above historical averages). Over the past 3 days, there has been a significant reduction in bonds trading near 52-week tight spreads in sectors identified as overvalued by the model.

Current Trading Allocation Strategy

-57% long

-23% short

-20% front-end allocation (75% in floating-rate notes maturing within 3 years, targeting undervalued, de-levering bonds).

  • Performance: Of 128 long/short trades (marked to market via TRACE) in 2025, 90% achieved ±5 bp targets, averaging ±7.40 bp per trade.

  • Recent Activity:

-The model paused adding short positions on July 2, 2025, due to strong credit inflows for the weeks ending June 25 and July 2.

-Between June 30 and July 8, 2025, 10 long trade indicators reached "avoid" levels, prompting a shift to a "more short" stance in the long/short basket.

-Today's trading allocation adjustment is the first in 3 weeks, driven by recent credit fund outflows.

Sector Trading Indicators for Thursday

  • Long:

-Yankee Banks (particularly floating-rate notes).

-Single A TMT.

  • Short:

-U.S. Big 6 Money Center Banks.

-Single A Healthcare.

-Single A and BBB Industrials (re-levering, with tight spreads).

-BBB TMT with larger issuer tech firms re-levering.

Risk Management: The model avoids adding risk to G-255 issuers scheduled to report results within 30 days, in compliance with global regulatory requirements for reporting "material events" within 30 days of a scheduled earnings release.

Wednesday's U.S. Credit Trading

Investment-Grade (IG) Trading

-Volume: 3% above average

-G-255 Issuers: 98 of the top 100 traded issuer bonds, accounting for 97% of top 100 issuer volume and 77% of total TRACE volume.

High-Yield (HY) Trading

-Volume: +15% above average

-G-255 Issuers: 12 of the top 25 traded bonds, accounting for 50% of top 25 issuer volume and 42% of total TRACE volume.

Market Movement

U.S. CDX Index: -1bp wider Wednesday @ 50.5 bp

U.S. IG Cash Spreads: Were +1 to +3bp wider; US financials underperformed with no sector tighter.

CDX HY Index: rose +.2 pt @ 107.70 (per Bloomberg)

HY Cash Bonds: BB Industrials and BB Consumer bonds were top performers. BB Utilities underperformed

High-Yield Activity

- Dealers bought $800 Million of HY bonds Wednesday.

Most Bought HY Bonds by End Users

- CCO Holdings (CHTR B1/BB- attractive long)

Most Sold HY Bonds by End Users

- Grey Media (GTN B3/CCC) new supply

- Viper Energy Partners (CNOM Ba1/BBB) new supply

Investment-Grade Activity

- Dealers net sold $200 million of IG bonds Wednesday.

Most Sold End User Sectors and Bonds

- IG Consumer Durables

American Honda Finance new issue (HNDA, A3/A- attractive short

Royal Caribbean Cruise Line (RCL Baa2/BBB- attractive long)

Most Sold Bought Issuer Sector: None

- Citicgroup (C, A2/BBB+ attractive long) was the most bought issuer.

Attractive Trading Sectors

Long Opportunities

  • Floating Rate Notes of de-levering issuers (UK bank and Japanese Bank issuance most attractive) Overall model indicators 207 bonds ($299.6 billion) are considered undervalued by the stochastic credit trading model with 79 attractive long trade indicators for the entire 6,000 bond universe.

Short Opportunities

  • 1363 bonds ($1.07 trillion) are considered overvalued by the stochastic credit trading model with 586 attractive short trade indicators for the entire 6,000 bond universe.

  • U.S. Big 6 Banks (All Ratings): $724 billion in overvalued market capital across 286 bonds, with 84 short indicators.

  • BBB TMT $215.9 billion in overvalued market capital across 129 bonds, with 33 short indicators.

  • Single A, BBB and Industrials $143 billion in overvalued market capital across 114 bonds, with 53 short indicators.

  • Single A Healthcare $174.4 billion in overvalued market capital across 119 bonds, with 48 short indicators.

Issuer News

Amazon.com (AMZN A1/AA attractive long) extended its annual Prime Day summer sale to four days from two, aiming to provide shoppers with more time to explore millions of deals on its platform. However, Momentum Commerce, which manages online sales for 50 brands across various product categories and price points, reported a 41% decline in Amazon sales on Tuesday compared to the first day of last year's Prime Day.

Daimler Truck (DTRGR A3/A- attractive short) anticipates that U.S. orders will remain at "extremely" low levels until uncertainties surrounding Trump's policies are resolved and freight volumes recover, according to Chief Financial Officer Eva Scherer.

U.S. IG Credit Valuation and Spreads

  • Spread Recovery: U.S. credit spreads have recovered 50% of the widening observed from November 12, 2024, to April 10, 2025.

  • Valuation: U.S. credit reverts to slightly overvalued based on output from our credit trading model.

Global Equity Correlation to IG Credit Spreads

On Wednesday, credit spreads and prices diverged for the third time in 10 trading days. U.S. investment-grade (IG) credit spreads widened, while high-yield prices remained largely unchanged. Equity markets saw gains, with the S&P 500 up 0.61% and the Dow Jones Industrial Average up 0.49%.

New Supply, Bond Maturities, and Credit Fund Inflows for July

  • . NTT USD Bond Issuance: The USD NTT trade priced on Wednesday and was deemed attractive by our trading model, despite the issuer re-levering. Fund managers and "buy and hold" IG fixed income funds will need time to adjust their Japanese Yankee and NTT holdings relative to major IG indexes by month-end. Corporate bonds trade relative to their own issuer's yield curve, not others':

-The new NTT 2Y coupon is 60 bp lower than the NTT 5.104 (maturing 07/02/27, issued 2024).

-The new NTT 3Y coupon is 30 bp higher than the NTT 1.591 (maturing 04/03/28, issued 2021).

-No prior 10Y NTT USD bond existed before Wednesday's offering.

  • Additional NTT Issuance:

€1.5 billion 2Y Floating-Rate Note (FRN).

€1.5 billion 8Y Fixed.

€1.5 billion 12Y Fixed.

  • Canadian Imperial Bank (CM): Issued €1.25 billion of 6-year non-callable 5-year (6nc5) bonds.

ETF Inflows (Bloomberg): Investments in U.S.-listed fixed income ETFs fell 38% for the week ending July 8, 2025, marking the 13th consecutive week of inflows:

-Net inflows totaled $4.52 billion (down from $7.24 billion the prior week, including leveraged funds).

-Broad bond-market ETFs dropped from $3.37 billion to $2.48 billion (a $885.5 million decline).

-Corporate bond ETFs shifted from $4.45 billion in inflows to $801.9 million in outflows.

-IG ETFs fell by $2.21 billion to $1.33 billion; high-yield ETFs dropped by $1.09 billion to $46.8 million.

-Year-to-date net inflows reached $184 billion.

Largest Inflow: iShares 0-3 Month Treasury Bond ETF ($833.5 million).

Largest Outflow: iShares iBoxx $ Investment Grade Corporate Bond ETF ($937.8 million).

Systematic Trading Model Indicators and Strategy

Model Output

  • Attractive short indicators decreased to 586, down 84 from Wednesday and 212 from Tuesday. The majority of the decline stems from sectors flagged as overvalued by the trading model over the past month.

  • 79 attractive long indicators: 3 fewer than Wednesday.

Weekly Model output updates are expected following this afternoon's fund flow data release. Current indicators include:

  • Long Positions: Prioritize deleveraging new issues with attractive valuations.

  • Short Positions: Target re-levering issuers with the largest discount from their model-defined "avoid" point.

  • Maturity Preferences:

Optimal long maturity: 7 years.

Least attractive short maturity: 7 years.

Trading Strategy (ending July 10) Model output changes slightly until this afternoon's fund flow data.

Await this afternoon's retail fund flow data to generate updated Systematic Credit Trading Model indicators for the daily trading strategy.

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 individual bond trades based on trading strategy

Most Recent Systematic long/short trades:

  • None on Wednesday

Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – July 9, 2025)

Total Trades: 130 (1% of total indicators).

Performance Summary:

  • Long Indicators: 90/99 reached avoid-trading levels, tightening by -9.55 bp.

  • Short Indicators: 27/31 reached avoid-trading levels, widening by +5.49 bp.

  • Remaining Longs: 9 tightened by -0.56 bp.

  • Remaining Shorts: 4 tightened by -11.25 bp.

  • Average Spread Movement: ±7.4 bp in the indicated direction.

  • Success Rate: 90% of indicators reached avoid-trading levels which is normal.

  • Average trade holding period: (22 trading days) + 17% above 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.