Systematic Credit and Equity G-255 Trading Indicators for September 30, 2025
Good Morning! Carnival (CCL Ba3/BB+) reported third-quarter results on Monday (see page 6), initially boosting markets by exceeding analyst expectations and raising 2026 guidance. However, CCL equity fell 8% peak-to-trough, marking its largest single-day drop in five months. Despite record 2026 bookings, the decline was driven by concerns over year-over-year operating cash flow, which remains lower, prompting investor skepticism: "What if this is as good as it gets?" (Jack Nicholson, 1997).
Impact of Semi-Annual Reporting
If Carnival shifted to semi-annual reporting, withholding updates on bookings, cash flow, and balance sheet in December, how would this affect its securities? Less frequent data could increase uncertainty, likely pressuring CCL equity prices due to reduced transparency. Similarly, CCL bonds would likely become less attractive, as limited balance sheet and cash flow visibility could elevate perceived risk, potentially increasing borrowing costs.
SEC Proposal on Reporting Frequency
The U.S. Securities and Exchange Commission is fast-tracking a proposal from Donald Trump to allow most companies to switch from quarterly to semi-annual reporting. This change aims to reduce costs and shift focus from short-term performance, but critics argue it undermines transparency in American capital markets.
Global Context and Transparency
Of the world's largest corporate debt issuers, 21 report semi-annually: 9 consumer companies, 4 communications firms, and 8 banks. Notably, the four largest Australian banks account for 71% of U.S. dollar-denominated debt issued by these 21 issuers. Non-U.S. capital flows have had minimal impact on U.S. capital markets thus far, but increased transparency, not reduced, typically drives investment in U.S. markets.
Issuers rated below AA that report semi-annually pay approximately 20 basis points more to issue U.S. dollar debt compared to competitors reporting quarterly, reflecting the market's preference for transparency.
Credit Market Model Indicators:
Our trading model reached a 2025 peak for net short credit last Tuesday, with credit spreads widening by approximately 3 basis points (bp) since then. Longer-dated credit spreads remain wider than last year's five-year tight levels reached in November.
The model identifies recent new supply from deleveraging issuers as the only attractive long trade indicators.
Key Economic information Monday
September Dallas Federal Reserve Manufacturing outlook dropped to -8.7 from -1.8 in August.
Prices paid remained elevated (43.4). Prices received fell to 11.7 from 15.1 in August
Pending home sales reached an to a reading of 74.7, the highest since April.
Trading Model Indicators and Strategy for Tuesday
Our systematic trading model indicates USD high-yield (HY) and investment-grade (IG) credit as overvalued. Inflows into non-USD funds are growing, though at a slower pace. Post-Monday trading, 7-year credit remains the most attractive maturity sector.
Today's Systematic Trading Sector Indicators
Top 3 Short-Indicated Sectors:
BBB Autos (USD/EUR)
USD Single A Healthcare (USD only)
Single A Industrials (USD only)
Top 3 Long-Indicated Sectors:
Yankee French Banks (USD/EUR)
U.S. BBB/BB TMT (USD and EUR)
U.K. Banks (all currencies)
USD Systematic Trading Model
The model continues to suggest U.S. credit is overvalued, with wider spreads likely into month end trading.
Trading Allocation Strategy
42% Long: Undervalued, deleveraging bonds.
38% Short: Overvalued bonds in re-leveraging sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 168 long/short trades in 2025 (marked via TRACE), 89% achieved ±5 bp targets, averaging ±6.97 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.
Monday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +22% above average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 97% of top 100 issuer volume and 67% of total TRACE volume.
High-Yield (HY) Trading
Volume: 22% above average.
G-255 Issuers: 12 of the top 25 traded bonds accounted for 44% of top 25 issuer volume and 51% of total TRACE volume.
Monday Credit Market Movement
U.S. CDX Index: -.35 bp at 47.60 bp.
U.S. IG Cash Spreads: (-2bp) tighter to (+2bp) wider with US financials underperforming and healthcare outperforming.
CDX HY Index: -.1bp @ 107.7 (per Bloomberg).
HY Cash Bonds: Were unchanged.
High-Yield Activity
• Dealers bought $ 1.6 billion of HY bonds on Monday.
Most Bought HY Bonds: NRG Energy (Ba2/BB attractive short)
Most Sold HY Bonds: CCO Holdings (CHTR B1/BB-)
Investment Grade Activity
Dealers sold $300mm of IG bonds on Monday.
Most Bought Sector: BBB TMT
Oracle (ORCL Baa2/BBB attractive short)
AT&T (T BAA2/BBB attractive long)
Most Sold Sector: Big 6 Banks
JP Morgan Chase (JPM A1/A attractive short)
Bank of America (BAC A1/A 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 106 undervalued bonds ($155 billion), with 25
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,559 bonds ($2.43 trillion) are overvalued per the stochastic credit trading model, with 1015 short trade indicators.
U.S. Big 6 Banks (All Ratings): 305 bonds ($766 billion) overvalued, with 214 short indicators.
Single A and BB Energy: 106 bonds ($176.1 billion) overvalued, with 71 short indicators.
Single A Healthcare: 117 bonds ($168.3 billion) overvalued, with 86 short indicators.
Single A Industrials: 97 bonds ($106 billion) overvalued, with 63 short indicators.
G-255 Issuer News
BP Plc has finalized its investment decision for the $5 billion Tiber-Guadalupe project in the U.S. Gulf Coast, advancing its strategy to prioritize oil and gas production. The offshore platform is central to BP's goal of surpassing 400,000 barrels per day in regional output by the end of the decade, the company announced Monday. BP's shares dipped 0.7% in London trading. CEO Murray Auchincloss, aiming to reverse the company's underperformance amid pressure from activist shareholder Elliott Investment Management, plans to divest $20 billion in non-core assets, including green projects, to fund global oil and gas expansion.
BP (BPLN A1/A-) carries a short trading indicator for both credit and equity.
Toronto-Dominion Bank has reinstated growth guidance, targeting a 16% adjusted return on equity and 7% to 10% adjusted earnings per share growth by fiscal 2029, aligning with pre-U.S. money-laundering scandal goals. The bank aims to cut billions in annual costs and drive revenue by attracting more clients and cross-selling products, targeting C$2 billion to C$2.5 billion in yearly savings. Toronto-Dominion plans to return excess capital to shareholders through a C$6 billion to C$7 billion buyback program, while also investing in its business and considering acquisitions.
Toronto Dominion (TD A2/A-) carries attractive long trading indicator both debt and equity.
Verizon Communications Inc. is in talks with EchoStar Corp. to acquire its wireless spectrum, specifically EchoStar's AWS-3 licenses, which are critical for 5G signal transmission. EchoStar shares surged up to 15% in after-hours trading following the news.
Verizon (VZ Baa1/BBB+) carries attractive long indicators for both credit and equity.
EchoStar (SATS Caa1/B) carries attractive long indicator for both SATS and Dish (DISH Caa3/CCC-) credit.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 31% 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) shows overvaluation. 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 slightly wider compared to last year.
Year-to-Date (YTD): Spreads are wider YTD.
UST 10-Year Rates: Up +36 basis points (bp) YoY but down -43 bp YTD.
Global Equity Correlation to IG Credit Spreads
U.S. equities and credit markets diverged for the third time in 14 trading days and the sixth time in September 2025. Equities edged slightly higher, while U.S. corporate credit remained unchanged. Carnival, the only G-255 issuer reporting results this week, announced earnings on Monday. Delta Airlines, entering a quiet period ahead of its October 8 earnings, will not report this week. A U.S. government shutdown appears likely, though historically, equities tend to rally post-shutdown. U.S. corporate debt valuations are no longer at all-time highs. Over the past 199 trading days, 10-year U.S. corporate credit and equity prices correlated on 147 days, reflecting an 80% historical correlation. In 2025, this correlation is 73%, the fifth lowest on record.
New USD G-255 supply and fund flow data
Monday saw three new G-255 bond offerings. Société Générale (SOCGEN Baa2/BBB) issued 11nc10 holdco bonds, its first since early 2024. September 2025 was the largest month this year for G-255 issuers, with 65 issuers selling 155 bonds totaling $154 billion in new supply.
September has been the largest month of the year for G – 255 issuers with 65 issuers selling 155 bonds totaling $154 billion of new supply.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1015, +5 from Monday +97% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 25, -3 from Monday.
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Target deleveraging new issues with attractive valuations, focusing on 5-year maturities.
Short Positions: Target re-leveraging issuers trading at the deepest discount from their model avoid point, avoiding 7-year maturities due to low attractiveness.
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 67% long position threshold is reached.
Current Status: No recent deleveraging new supply trades; new issue spreads widened by +2 basis points.
Current Status of trading indicators below:
Last week 1 short trade reached its avoid trading level and was replaced by 3 new secondary short indicators, while 2 new long trade indicators were added.
Systematic Credit Trading Strategy September 29, 2025
Closed Positions: Last week the trading model indicators closed on short trade.
Enter New Longs: Last week, 2 long new issue indicators were added to the long/short basket trade.
3. Enter New Short trades: Last week 3 trading model short trade indicators were added. The trading model indicators show adding short trades and for each new long added.
4. Monitor Trade Position 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. Tuesday's Basket Trade long/ short ratio 61.9%
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 29, 2025)
Performance Summary: Total Trades: 168 (1% of total trades).
Long Indicators: 119/134 reached avoid-trading levels, tightening by -9.34 bp.
Short Indicators: 28/35 reached avoid-trading levels, widening by +5.5 bp.
Remaining Longs: 13 widened by -.6 bp.
Remaining Shorts: 8 tightened by -13.9 bp.
Average Spread Movement: ±6.97 bp in the recommended direction.
Success Rate: 89% of indicators reached avoid-trading levels, which is slightly below normal.
Average trade holding period: (19.9 trading days) below normal.
Carnival Corp Results from Monday
Carnival (CCL, Baa2/BBB- secured rating), attractive long debt attractive long equity) Earnings Summary: Carnival reported 3Q revenue that rose 3.25% YoY and operating results that rose 4.2%.
Operating results:
3Q Operating margin rose 27 bp to 27.85%
3Q Cruise costs per available lower berth before fuel rose 5.5% YoY.
3Q Customer deposits of $7.1 billion surpassed the previous record at August 31, 2024.
Financial Position:
• 9 mos cash from operations fell 6.3% YoY to $5 billion.
• 9 mos free cash flow rose by $1.8 billion YoY to $2.9 billion.
• 3Q Net debt fell -$3.6 billion YoY.
Company did not use balance sheet to repurchase equity or pay dividends in the first 9mos of 2025.
Trading Model Indicator: 6 Carnival Corp USD secondary bonds in circulation have a market capitalization of $1 billion or more. All bonds have trading model indicators that are overvalued.
Equity Indicator: CCL US is attractive at $25.21 per share.
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.