Systematic Credit and Equity G-255 Trading Indicators for January 20, 2026
G-255 Specific Credit Sector Indicators January 20 – Long Only Indicators on Page 8
G-255 Overview: What It Is and Why It Matters
Definition: G-255 tracks the world's 255 largest corporate securities issuers, each with at least $15 billion in tradable liquid debt across global currencies. It focuses on ~6,000 USD bonds (average $1.16B per bond) and 242 publicly listed equities (total ~$47T market cap, 60% larger per issuer than S&P 500). 80 equities are non-US.
Key Differentiator: Unlike other systematic trading approaches (e.g., peer-relative models, broad indices like Bloomberg with 1,200–2,000+ issuers, or AI/ML forecasting systems), G-255 is purely self-referential—signals derive from finite math on each security's own 52-week historical public pricing data (no peers, no market betas, no forecasts). This issuer-isolated focus captures mean reversion to individual norms, covering 85% of daily TRACE trades (95% IG, 48% HY). Back-tested 97.5% tracking success emphasizes quantitative purity over relative value or macro bets.
Liquidity Rules: Fixed-coupon USD bonds need $750M outstanding/$250M 30-day volume; floaters $300M/$50M. Equities trade on national exchanges. Designed for systematic, electronic trading of large sizes (up to $3.5T assets total).
Long Opportunities: - Sectors are shown with the most recent long trade indicator date for comparison.
Focus on de-leveraging issuers, including Single A and BB rated TMT, Single A rated Healthcare, UK Banks, US
Regional Banks, Canadian Banks and Floating Rate Notes.
· Valuation Insight: The stochastic credit trading model identifies 172 undervalued bonds ($301 billion market
value), with 91 long trade indicators across the 6,000-bond USD universe.
· At present Single A and BBB rated TMT are the only sectors with 10 or more long trade indicators.
Short Opportunities – sectors shown with the most recent short trade indicator date for comparison.
· 1,583 bonds ($2.679 trillion) are overvalued per the stochastic credit trading model, with 1276 short trade indicators.
· U.S. Big 6 Banks: 288 bonds ($711.2 billion) are overvalued with 261 short trade indicators.
· BBB Energy: 86 bonds ($103 billion) are overvalued with 79 short trade indicators.
· Single A Healthcare: 123 bonds ($179.1 billion) are overvalued with 117 short trade indicators.
· BBB Healthcare: 64 bonds ($108.6 billion) are overvalued with 63 short trade indicators
· Single A Industrials: No longer a short indicator as of 10/22. Bonds +6.5 to +15 bp 9/22 -10/22
· Autos: 170 bonds ($178 billion) are overvalued, with 156 short trade indicators
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Systematic Portfolio Daily Trading Model Indicators
· Long Indicators: Target deleveraging new issues with attractive valuations, focusing on 7-year maturities.
· Short Indicators: Target releveraging issuers trading at the deepest discount from their model avoid point; avoid 7-year maturities due to low attractiveness and focus on 2031 maturities for best short opportunities.
· Replace Longs: Swap long positions that have reached their avoid trading level.
· Portfolio Trading Hurdle: Maintain a 1:1 long-to-short ratio once the 62.5% long position threshold is reached.
· Current Status: Add new supply trades where the issuer is deleveraging; add new issue bonds where spreads have widened by +2 basis points.
· Current Status of Trading Indicators: Last week, one short trade and two long trades reached their avoid trading level. The trading model added three long indicators.
Monitor Trade Position Composition
· Track the percentage of long positions relative to the total portfolio.
· If replacing long positions that have reached their avoid trading level pushes the portfolio above the 62.5% long hurdle, initiate short positions in re-leveraging issuers (avoiding 5-year maturities) at a 1:1 ratio for additional long positions.
· Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic strategy.
· Look for individual bond indicators to change overnight: Historic trading levels are leading to overnight adjustments to long, short, and avoid indicator levels.
G-255 Specific Bond Trading Indicators January 20
· Closed Positions: Lowe's (Baa1/BBB+) LOW 4 1/2 10/15/32 and RBC (Baa2/BBB) RY 6 1/2 11/24/2085 reached their avoid trading level Monday December 22. Lowe's (Baa2/BBB+) LOW 4 1/2 10/15/32 reached its avoid trading level on Friday January 2. Lloyds Bank (A3/A-) LLOYDS Float 11/04/31 reached its avoid trading level on January 8. Deutsche Bank NY Baa1/BBB DB 4.95 08/04/31 reached its avoid trading level on Tuesday January 13.
· Enter New Longs: ATT (Baa2/BBB) T 4.9 11/01/35 Friday 12/19/25, RBC (A1/A) RY 4.305 11/03/31 and Amazon (A1/AA) AMZN 5.55 11/20/65 were added as a G – 255 de-levering new issue trading more than +2bp to NIP. On Wednesday 1/14/26 Bank of New York (Aa3/A+) BK 4.026 01/22/30 was added as a G – 255 new issue long indicator
· Enter New Short Trades: The trading model added BP (A2/A) BPLN 4.893 09/11/33 as a short trade on Thursday 11/20, the Toyota (A2/A) TOYOTA 4.8 01/05/34 Monday 11/21 and the CVS (Baa3/BBB) CVS 1 3/4 08/21/30 on Monday 11/24. The model again produced a short trade indicator for General Motors (Baa2/BBB) GM 3.6 06/21/30 on Monday 12/8/25.
Systematic Trading Indicators Friday: The systematic trading model added Morgan Stanley (Baa1/BBB+) MS 5.948 01/19/38 as a secondary short trade indicator. McDonald's (Baa1/BBB+) MCD 5 02/13/36 reached its avoid trading level.
Tuesday's basket trade position indicator: 52% long
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – January 20, 2026)
Performance Summary
· Total Trades: 195 (2025 full year); 26 in 2026
· Long Indicators (2025): 136 out of 150 tightened by an average of -9.2 bp. In 2026 3 of 14 tightened by (-6.7bp).
· Short Indicators (2025): 36 out of 45 widened by an average of +5.85 bp.
· Remaining Longs (2025): 14 positions tightened by -1.53 bp. (2026): 11 positions tightened by -2.46 bp
· Remaining Shorts (2025): 9 positions tightened by -19.23 bp.(2026): 9 positions tightened by - 1.61 bp
· Average Spread Movement (2025): ±6.73 bp in the recommended direction. (2026) ±1.37 bp
· Success Rate (2025): 88.2% of indicators reached avoid-trading levels (slightly below historical norms).
· Average Trade Holding Period (2025): 23.4 days (above average).
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Current Sample Systematic Basket bond trades based on trading strategy January 20
G-255 Trade Sizes and Systematic Trade Process
The G-255 Equity and Credit Indicators for the World's Largest Issuers of Corporate Bonds
· G-255 represents the world's 255 largest issuers of corporate securities and have a minimum equivalent of $15 billion of tradable liquid debt market capital in all global currencies.
· At present there are just under 6,000 G-255 USD bonds in circulation.
· The average capitalization of each G-255 bond is just over $1.16 billion (including floating rate notes).
· There are 242 publicly listed equities for the G-255 debt issuers that trade in 8 currencies.
· The total equity market capital of the 242 stocks is just over $47 trillion or $182 billion per issuer. That is 60% larger equity capital per constituent than the S&P 500.
· 80 of the 242 publicly traded equities for the G-255 are domiciled outside of the United States.
G-255 Credit Indicator USD Trading Liquidity
· The Systematic G-255 trading system is designed to trade with no human input. Each fixed coupon USD trading indicator requires $750mm of outstanding market capital and $250mm of total trading volume in the prior 30 trading days if not a new issue.
· Each G-255 floating rate note USD trading indicator requires $300mm of outstanding market capital and $50mm of total trading volume in the prior 30 trading days if not a new issue.
· Each G-255 underlying equity is listed on the issuer's national equity trading exchange.
G-255 Credit Indicators USD Trading Process and Size – Overall Strategy Is Designed To Trade $3 Trillion of Assets
The G – 255 equities and bonds are the most liquid cash securities in their local markets. The USD bond and equity indicators are "systematic" and employ only publicly available issuer disclosure and market trade prints on TRACE or any of the US trading exchanges.
The G- 255 trading process is designed for "systematic" trading on electronic platforms for both equities and bonds.
The trading system is designed to handle the largest institutional trade sizes as a result. The ability to trade size is dependent on user resources and trading relationships as all of the USD corporate bonds in the G-255 systematic trading model are traded OTC by over 80 dealers and all 5 major US electronic bond trading firms.
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G-255 Credit Indicators and USD Liquidity - 80% of All Daily TRACE Trades
The G-255 Credit trading indicators cover 80% (95% of all USD investment grade and 48% of all USD non-investment grade trades) posted daily on NASD TRACE.
G-255 Trade Indicators are created daily for all 6,000 securities.
Indicator calibration: The stochastic credit trading model uses earnings data to recalibrate balance sheet leverage and valuation indicators. It then evaluates spread-to-curve positioning, earnings momentum, and debt ratios against each issuer's historical trading patterns.
Bond-level granularity: G-255 USD issuers hold an average of 27 USD bonds outstanding (equivalent to a $27.5 billion USD debt cap per issuer). The systematic model analyzes historical relative value across the capital structure, generating indicators for overvalued or undervalued bonds.
Equity-credit linkage: For issuers with both publicly traded equity and corporate bonds, equity signals—driven by cash flow comparisons and shareholder returns—directly influence credit spreads. The G-255 framework integrates these inputs to produce synchronized long and short trading signals for each qualifying security, based on the model's liquidity thresholds.
Equity and Credit Trading and Sector Indicators and Friday Trading
Friday, January 16, 2026, Global equities faced pressure Friday from mixed U.S. bank earnings reports and escalating geopolitical tensions involving Greenland, U.S.-NATO relations, and trade with Europe. Note that NATO countries account for roughly 30% of S&P 500 companies' overall exposure (even though the S&P 500 is a U.S. index). Greenland itself represents a tiny fraction of global wealth and GDP—less than 0.01%.
That said, the EU and some European nations have long sought ways to reduce their reliance on U.S. markets and investments. The recent threats of a 10% tariff (the "bank credit cap" discussion) and the renewed "Greenland debate" are now providing convenient excuses for European governments and G-255 companies to pull back from U.S. exposure. The "buy the dip" trade is ostensibly a US capital trade. It will be tested on Tuesday.
At the same time also saw the G-255 credit trade indicator hit 1,300+ short trade indicators comprising almost $2 trillion of market capital and 84% of all overvalued USD bonds of re-levering G – 255 issuers.G-255 USD credit is now not significantly overvalued for the 4th time in the past 14 months. G-255 equities are just modestly overvalued. But there is significant risk in the Bank sector.
Key Trading Indicator Economic Results – Friday:
December Industrial Production rose 0.2% and capacity utilization rose from 76% to 76.4 MoM.
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G-255 Systematic Model Update: January 20 Trading and Earnings Reports
Corrections from Friday's report
Yes Earnings for the US Big 6 banks are now in. The numbers do not paint a pretty picture from a quantitative perspective. Moody's upgrades of 4 of the banks make even less sense. How many issuers in the Moody's universe are
(1) Adding net debt
(2) Reducing CET1 capital to repurchase equity
(3) Taking significantly greater capital market risk
The Volker Rule is dead.
Thursday we wrote about returns to shareholders not earnings driving both equity and credit returns in the Big 6 bank trading space. What we wrote on Friday was incorrect "Big 6 bank securities portfolios are just 15% smaller than Big 6 bank loan portfolios." In actuality the trading desks and securities held by the Big 6 banks are $1 trillion larger (over 20%) than their long books. (see below)
Now let's be realistic here: the people who operate these banks are some of the brightest financial minds in the world. But the truth of the matter is, all 6 banks to a varying degree are transforming themselves into leveraged hedge funds courtesy of Basel, depositors, the US Federal Reserve Bank and global capital markets.
Big 6 Bank Combined Balance Sheet 12/31/25
And what do these banks own? A: The exact same thing a leveraged credit/equity (long/short) hedge positions. Do Big 6 bank trading desk holdings look a lot like the G-255 equity and corporate bond trading model (all 6,500 debt and equity securities)? A: They are almost identical.
Big 6 Bank Operating Metrics 12/31/25
To repeat what we wrote earlier: "The $37 billion sold by 4 of the Big 6 banks this week is just an appetizer of a full 8-course meal to be served up by the US' largest banks if they are going to be able to grow 2026 earnings by expanding balance sheet trading and investment and return more than the $126 billion shelled out in 2025 to repurchase shares at all-time highs and grow dividends by +20% YoY. Bon appétit."
All 6 bank strategies are similar: Lend less, borrow more, buy the same bonds/equity that their customers are buying and shorting. Return as much capital via share repurchase and dividends as possible to keep equity values near all-time highs and Bank credit spreads close to all-time tights owing to overstated CDS valuations based on Bank equity prices.
OK How Do I trade this?
If credit spreads are going wider (and the G-255 systematic trading model says they are) they will be led by the big 6 banks as they as the largest trading sector in the USD market.
Best Big 6 Bank long Trade: Wait for Citigroup new supply. As for the rest of the Big 6 new supply? Its similar to a bus stop. You're not missing anything; more supply will be coming shortly.
Best Big 6 Short Trade? Morgan Stanley (Baa1/BBB+ subordinated rating) MS 5.948 01/19/38 +85/10Y
Best Big 6 trade for long only accounts? JPMCC CDS USD SR 5Y D14
Which new supply does the model see as more attractive JP Morgan (JPM), Goldman Sachs (GS), Wells Fargo (WFC) or Morgan Stanley (MS)? A: Citigroup (C ).
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G-255 Credit Market Valuation and New G – 255 Supply January 20, 2026 On a Risk/Reward basis, High Yield bonds have far outperformed Investment Grade in 2025
US Credit Spreads reached their tightest point of the year on Friday, February 21, 2025, and widest on Tuesday, April 10, 2025.
YOY change in the UST 5Y: -58.3 bp.
YOY change in the UST 10Y: -33.6 bp.
We are now flat in terms of Credit Spreads YoY.
Bloomberg 10Y credit spreads are derived by taking the Moody's index yield and subtracting the UST 10Y YTM.
Since we were asked – the G-255 trading model indicators are designed to make money on every trade. Last year, that happened on 1,204 of 1,311 published trade recommendations and 99,152 of 111,022 total trade indicators generated by our trading model. For those of you keeping score at home, that is 90% of the trades positive and well below the stochastic trading model's 32-year track record.
As for Thursday's new issue G-255 credit trade indicators: The principal reason that Morgan Stanley and Wells Fargo are adding net debt is they are using the corporate bond market to fund share repurchases and to refund significant USD maturities. Both are paying out capital to do so.
Both new issues are attractive for the next 22 trading days—the rest of those two trading curves are not.
What do the trading indicators show you want to own more of—Citigroup or Morgan Stanley? = Citigroup
US fund flows for the week ended Jan. 14, compared to a week earlier, according to LSEG Lipper:
Short and intermediate investment-grade bonds: $2.2b inflow vs. $4.29b inflow
High-yield notes: $371.3m outflow vs. $269.5m inflow
40 G – 255 issuers have come to market in USD in January 2025 total 119 bonds and 121.45 billion of market capital. 73 of the 119 bonds have reached their avoid trading point according to the G-255 credit trading model.
• Across all 2025 G-255 new issues, 93% of avoid trade indicators delivered an average return of just under -8 basis points over a 34-day holding period.
• Over the past 12 months, 1,028 of 1,100 G-255 USD bonds issued (totaling $1.147 trillion in notional) have hit avoid signals.
• All 20 December 2025 G-255 new issue trade indicators were reached in less than 22 trading days.
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G-255 Credit and Equity Market Indicators January 20
· Attractive Long Credit Indicators: 92 (-5 from Friday and -3% below the 200-day moving average of all long indicators).
· Attractive Long Credit Market Cap accounts for: 58% of all undervalued Systematic credit capital.
· Attractive Short Credit Indicators 1309, (+71 from Friday and +131% above the 200-day moving average of all model short trade indicators).
· Attractive Short Credit Market Cap accounts for: 84% of all overvalued Systematic credit capital.
G-255 Equity Trade Indicators and US Equity Correlation to Overall US Credit Spreads
G-255 credit spreads have correlated directionally with US equity index movement for 8 of the first 11 trading days of 2026.
US equities are +1.5% over the past month; US credit spreads are now materially tighter MOM
Systematic Equity Trading Indicators January 20
• Attractive Long G-255 Equity Trade Indicators: 52 (includes both undervalued and equities priced at extreme discount (+3 from Friday and -17% below the 200-day moving average of all long-trade indicators).
• Short Equity Trade Indicators -12, (unchanged from Friday) and +9% above the 200-day moving average of all model short trade indicators).
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Equities
highest ranked long indicators highest ranked short indicators:
Issuer Price | long Below| Issuer | Price | Short Above
G-255 Credit and Sector Indicators for "Long Only" trading strategies January 16
*Represents change from prior day indicators
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.