Systematic Credit and Equity G-255 Trading Indicators for September 22, 2025
Good Morning! U.S. risk markets opened softer Sunday night as we head into a week void of earnings, where expected new corporate debt supply is again expected to be strong, and there are signs (only signs) that capital flows away from U.S. markets are beginning to pick up steam.
Friday's risk results were slightly better than sideways. However, an announcement from the U.S. Bureau of Labor Statistics has had somewhat of a ripple effect in non-U.S. markets over the weekend.
Credit Market Model Indicator: Overvalued
Our credit trading model remains near all-time highs in terms of the number of short trading indicators, but it is still some $60 billion in short market capital away from last November's $1.9 trillion. We have seen a slowing of capital into U.S. corporate bond ETFs and mutual funds, but no capital outflow as of September 17.
UST: Not yet overvalued
The UST 2Y is now at a 52-week low yield, still (-3bp) from a short trade indicator.
United States Bureau of Labor Statistics
On Friday, the Bureau announced that the annual release of consumer expenditures data—initially set for Tuesday—would be "rescheduled to a later date." "We will update users when more information is available." There was no other notice.
That's a problem. The reason? The data is used to determine the weighting of specific goods and services in the Consumer Price Index (CPI) for the year ahead.
Proposed SEC 6 - Month filing requirements
While the consumer expenditures data has been delayed in the past, it's the wording of the announcement, combined with an SEC-proposed rule change on Trump's call to end quarterly earnings reporting, that raises concerns. Chair Atkins said if the rule change is approved, it will be left to companies to decide whether they switch to semiannual or stay with quarterly reporting.
Fund Flows, U.S. Equity and Corporate Debt Levels, and Public Disclosure
As we alluded to on Thursday, a decline in company disclosure has, without fail, led to market capital outflow. While several financial articles written last week noted that both the Hang Seng and Hong Kong stock exchanges only require six-month earnings disclosure, the articles failed to note that none of those exchanges' largest issuers file semi-annually. All of them have switched over the past decade from semi-annually to quarterly.
In the twenty-first-century information age, capital follows where issuer information is most precise. For years, that has been the U.S. capital markets. Making such a change will lead to capital outflow from the U.S. due to fiduciary guidelines for many investment funds. We note that only 3 of the top 60 global issuers report results semi-annually.
Since 1990, six Trump entities have filed for bankruptcy; however, only four of the five public entities have filed for bankruptcy. Since I have only been involved in two of the bankruptcies/asset sales, we only know the number of times Trump entities failed to file their financial statements on time back in the '90s. That would be four. We are not attempting to comment on the President's business successes or failures. Rather, his acumen as it relates to public markets and publicly traded securities is not what American capitalists or capital markets should rely upon.
Our systematic model generates trade indicators based on publicly available information and avoids all semi-annual issuers 60 days after reported earnings due to the lack of publicly available information. The new proposed rule would most likely be the "excuse" many funds would use to take capital out of the U.S. instead of making a political statement.
Trading Model Indicators and Strategy for Monday
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-Friday trading, 7-year credit remains 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 163 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.23 bp per trade.
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.
Friday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +11% above average.
G-255 Issuers: 95 of the top 100 traded issuer bonds accounted for 96% of top 100 issuer volume and 74% of total TRACE volume.
High-Yield (HY) Trading
Volume: 11% above average.
G-255 Issuers: 12 of the top 25 traded bonds accounted for 50% of top 25 issuer volume and 63% of total TRACE volume.
Friday Credit Market Movement
U.S. CDX Index: +0.3 bp at 47.3 bp.
U.S. IG Cash Spreads: were slightly tighter, with Energy outperforming.
CDX HY Index: unchanged @ 107.9 (per Bloomberg).
HY Cash Bonds: higher, with BB US financials outperforming.
High-Yield Activity
• Dealers bought $400mm in HY bonds on Friday.
Most Bought HY Bonds: Pemex (PEMEX B1/BBB attractive short)
Most Sold HY Bonds: Venture Global (VENLNG B1/BB)
Investment Grade Activity
Dealers sold $400mm of IG bonds on Friday.
Most Bought Sector: UK Banks
Lloyds Bank (LLOYDS A3/A-, attractive long)
Barclays Plc (BACR Baa1/BBB+ attractive long)
Most Sold Sector: Big Six Banks
Morgan Stanley (MS A1/A-, attractive short)
Goldman Sachs (GS A2/BBB+ attractive short)
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 128 undervalued bonds ($244 billion), with 43
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,586 bonds ($2.45 trillion) are overvalued per the stochastic credit trading model, with 1188 short trade indicators.
U.S. Big 6 Banks (All Ratings): 310 bonds ($770 billion) overvalued, with 229 short indicators.
Single A and BB Energy: 107 bonds ($170.3 billion) overvalued, with 74 short indicators.
Single A Healthcare: 118 bonds ($170.5 billion) overvalued, with 97 short indicators.
Single A Industrials: 116 bonds ($129.1 billion) overvalued, with 98 short indicators.
G-255 Issuer News
No G – 255 earnings reports this week
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 48% 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 39 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 3 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 7th trading day out of 8. USD 10Y credit and equity prices have correlated 143 out of 191 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 de-coupling of the two risk markets.
New USD G-255 supply and fund flow data
No new G-255 supply on Friday, with $30 billion+ expected this week. Nissan (NSANY Ba2/BB) held investor calls last week and is expected to sell bonds this week. Oracle (ORCL Baa2/BBB) sold $8 billion of new bonds in January, has $9 billion of short-term debt, and has been mentioned as part of a bidding group for TikTok. It will likely need to come to market in the next 90 days.
For the month of September, we have seen 49 of the world's largest borrowers sell 113 bonds totaling $101.8 billion, with 59% of those bonds coming from non-financial issuers. Year-to-date G-255 supply now stands at 287 new issues comprising 692 individual bonds totaling $832.39 billion, with 51.7% of those issues coming from non-financial companies.
As depicted on Friday, AT&T (T Baa2/BBB) issued $5 billion of new supply in four transactions, which had the strongest attractive long indicator and performed well in Friday's trading.
U.S. Mutual Fund + ETF flows for the week ended September 17 were:
Flat for investment-grade bonds at $5.54 billion.
+$299 million lower week-over-week at $1.95 billion for high-yield funds.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1188, +1 from Friday +106% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 42, -4 from Friday.
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 22, 2025
Closed Positions: Over the past week our trading model indicators had 4 bonds that reached their avoid trading levels.
Enter New Longs: Last week 5 new issue trading model indicators were added to the model long/short basket trade.
3. Enter New Short trades: Last week the 1 new short trading indicator was was added to the to the long/short model basket trade. The trading model indicators show adding short trades for each new long added.
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 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 Monday: None.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 19, 2025)
Total Trades: 163 (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: 11 tightened -3.46 bp.
Remaining Shorts: 6 tightened by -19.88 bp.
Average Spread Movement: ±7.23 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.
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.