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Tue, November 4, 2025

Systematic Credit and Equity G-255 Trade Indicators for November 4, 2025

Good morning. While the Dow Jones Industrial Average fell -0.48%, the SPX and NASD both closed higher Monday despite what we labeled a "sea change" in both the current and future levels of indebtedness for the globe's largest corporates.

For the world's largest issuers of debt, we saw credit spreads for both non-investment-grade and IG issuers move to a level that is seen only 2–4 times a year and last occurred in May.

Post-$55 billion of new TMT offerings—some very slow additions in the wireless/broadband industry globally, combined with the prospect of another $100–$250 billion of new supply in that group alone—saw both USD High Yield and Investment Grade issuer credit spreads retreat.

Since we have already written volumes about the re-levering of the corporate balance sheet to reward shareholders, we display the US Big 6 banks' equity and corporate debt metrics below.

Returns to shareholders in this sector now represent over 80% of net income and are growing 5x faster than revenue.

Big 6 Banks Equity Indictors

The equity market response to the return of capital has been enthusiastic. The big 6 banks at a group trade in the upper quartile of their historic valuation range. We will show other sectors later where shareholder return is not as robust in 2025. The results as it relates to equity returns are stark.

Big 6 Bank Credit Metrics

Keeping in mind that only JPM has equity market capitalization greater than its debt market cap, the relative attractiveness of the Big 6 US bank bonds (for the purposes of this report we show only the bank bonds and Senior Holdco bonds) is not strong. The returns on these bonds as new supply becomes a necessity to maintain shareholder payout growth are just starting to impact credit spreads.

As noted previously (and we will show greater detail in separate sector overviews), the divergence directionally

in equity prices of the world's largest corporate borrowers and their corporate debt will widen as net balance sheet leverage grows.

Post three days of credit spread widening, and material drops in equity prices of the world's most indebted companies, the systematic trading model indicators have turned slightly undervalued, with over 90 equities of the 244 issuers with $15 billion of tradable debt and public equity showing attractive long-trade indicators going into the AM's trading session. G-255 corporate debt trades at its widest levels since May but is still modestly overvalued.

Top Short-Indicated Sector:

BBB Autos (All currencies)

Top 3 Long-Indicated Sectors:

US Regional Banks (USD)

UK Banks (all currencies)

U.S. BBB TMT (all currencies)

Trading Allocation Strategy:

47.5% Long: Undervalued, deleveraging bonds.

32.5% Short: Overvalued bonds in releveraging sectors.

20% Front-End: 75% in floating-rate notes (<3 years).

Risk Management:

The model avoids adding risk to G-255 issuers reporting within 30 days due to global regulatory requirements for material event disclosures.

Material Economic Indicators Reported Monday:

  • ISM Manufacturing PMI fell to 48.7 in October from 49.1 in September.

  • Prices paid increase was the lowest in 7 months.

Credit Trading Monday

Investment-Grade (IG) Trading

  • Volume: +31 % above average with META and Oracle accounting for 10% of the volume

  • G-255 Issuers: 99 of the top 100 traded issuer bonds accounted for 99% of top 100 issuer volume and 95% of total TRACE volume.

High-Yield (HY) Trading

  • Volume: +19% above average.

  • G-255 Issuers: 11 of the top 25 traded bonds accounted for 55% of top 25 issuer volume and 51% of total TRACE volume.

Monday Credit Market Movement

  • US CDX Index: wider +.6bp at 49 bp (includes -4 bp of forward roll)

  • US IG Cash Spreads: (+2 to +4 bp) Single A rated communications underperformed.

  • CDX HY Index: -0.1 bp at 107.2 (per Bloomberg)

  • HY Cash Bonds were wider Monday, with BB Fins underperforming.

High-Yield Activity

• Dealers bought $1.4 bill of high yield bonds on Monday.

  • Most Bought HY Bonds: Neptune Bidco (NLSN B2/B)

  • Most Sold HY Bonds: CCO Holdings (CHTR B1/BB- attractive short)

Investment Grade Activity

  • Dealers bought $ 700 million of IG bonds on Monday.

  • Most Bought Sector: BBB TMT

Oracle (ORCL Baa2/BBB attractive short)

T-Mobile (TMUS Baa1/BBB attractive short)

  • Most Sold Sector: Single A TMT

Broadcom (AVGO A3/A- attractive long)

NTT Finance (A3 /A- attractive short)

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 Insight: The stochastic credit trading model identifies 215 undervalued bonds ($356 billion market value), with 66 long trade indicators across the 6,000-bond USD universe.

Short Opportunities

  • 1,483 bonds ($2.3 trillion) are overvalued per the stochastic credit trading model, with 475 short trade indicators.

  • U.S. Big 6 Banks (all ratings): Are no longer a sector short trade indicator as of October 22.

  • Single A and BB Energy: Are no longer a sector short indicator as of October 27.

  • Single A Healthcare: Is no longer a sector short trade indicator as of October 22.

  • Single A Industrials: Are no longer a sector short trade indicator as of October 22.

  • BBB Autos: 75 bonds ($90.6 billion) are overvalued, with 53 short trade indicators

U.S. IG Credit Valuation and Spreads

U.S. IG Credit Valuation and Spreads

  • Credit Spread Recovery: U.S. credit spreads have recovered 40% of the widening observed from November 12, 2024, to April 10, 2025.

  • Model Valuation: IG and HY markets show modest overvaluation. Post earnings announcements from 129 of the world's 255 largest issuers of corporate debt 143 issuers are increasing leverage.

2025 10-Year Credit Spreads

  • Year-over-Year (YoY): are wider compared to last year.

  • Year-to-Date (YTD): are wider.

  • UST 10-Year Rates: -19.6bp YoY and -48bp YTD.

Bloomberg 10Y credit spreads are derived by taking the Moody's relevant index yield and subtracting the UST 10Y YTM

Post-Thursday's 4-issuer, $40 billion sales of new G-255 bonds, Monday saw 6 new G-255 issuers sell $32.35 billion of new bonds (24). Alphabet (GOOGL) led the pack, selling $17.5 billion in 8 deals following another €6.5 bil issued in Europe (6 bonds).

While the new GOOG bonds were sold well outside of existing debt, the corporate bond market is now faced with the dual question of where new technology supply should trade—based on the amount of money many of these issuers are returning to shareholders—as well as how the remainder of the corporate bond market will re-price, given the likelihood that the $55 billion raised by Meta and Alphabet is the beginning of a series of large deals.

When combined with Monday's supply from Shell (RDSALN), UBS (UBS), and Novartis (NOVNVX), it would appear that record capital returns to shareholders beget record bond issuance.

US Equity Correlation to Overall US Credit Spreads

US equities and credit markets did not correlate directionally for a ninth trading day in 15 and now have failed to move in the same direction 28% of all 2025 trading days. The magnitude of new supply, combined with less-than-stellar earnings results from large-cap issuers of corporate debt, have been the catalysts for the divergent move in risk markets. The markets continue to prepare for Oracle and perhaps AT&T new supply. While the correlation between US equity prices and 10-year US credit spreads is a mathematical certainty, the number of trading days when the direction of the two markets varies in a given year depends on exogenous factors. The statistical average of directional correlation between the SPX and US credit spreads is close to 80% over the past 33 years, with a range of 74% to 83%.

So, is corporate credit attractive post-Thursday–Monday trading? A: No. We need to see a rebound from month-end selling, and there are a few more earnings and new issues to incorporate. Should we see the number of long-credit trade indicators increase materially, those valuations would be more obvious to the overall credit market.

  • Attractive Long Indicators: 66, +14 from Monday and -40% below the 200-day moving average of all model long trade indicators.

  • Attractive Long Market Cap accounts for: 24% of all undervalued Systematic Credit capital.

  • Attractive Short Indicators 475, -155 from Monday and -7% below the 200-day moving average of all model short trade indicators

  • Attractive Short Market Cap accounts for: 34% of all overvalued Systematic Credit Capital

Systematic Portfolio Trading Model Indicators

  • Prioritize Long Positions: Target deleveraging new issues with attractive valuations, focusing on 5-year maturities.

  • Short Positions: Target releveraging 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 67.5% long position threshold is reached.

  • Current Status: Add new supply trades where the issuer is deleveraging; add new issue bonds where spreads 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.

Systematic Credit Trading Strategy – November 4, 2025:

  • Closed Positions: United Health (A2/A) UNH 3.05 05/15/41 short trading indicator reached its avoid trading level. John Deere Cr. (A2/A) DE 5.45 01/16/35 short trading indicator reached its avoid trading level Monday.

Enter New Longs: The model added new issues Philip Morris (A2/A-) PM 4 1/4 10/29/32 and Lloyds Bank (Baa3/BBB-) LLOYDS 6 5/8 PERP as long trade indicators. Lloyds Bank (A3/A-) LLOYDS Float 11/04/31 was added by the trading model as another long trade indicator on Tuesday. The trading model added Meta (AA3/ AA-) META 4 7/8 11/15/35 and META 5 1/2 11/15/45 new supply long trade indicators on Friday.

  • Enter New Short Trades: The trading model added General Motors Financial (Baa2/BBB) GM 2.7 06/10/31 (short indicator) post new GM supply last week. The trading model adds Cigna (Baa1/A-) CI 2.4 03/15/30 and HCA (Baa2/BBB-) HCA 3 5/8 03/15/32 as the next short trade 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 65% long hurdle, initiate short positions in releveraging issuers (avoiding 7-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.

Monday's Basket Trade Long/Short Ratio: 68.9%

Our systematic 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: John Deere Cr. (A2/A) DE 5.45 01/16/35 short trading indicator reached its avoid trading level. The trading model adds Cigna (Baa1/A-) CI 2.4 03/15/30 and HCA (Baa2/BBB-) HCA 3 5/8 03/15/32 as the next short trade indicators.

Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – November 3, 2025)

Performance Summary: Total Trades: 182 (1% of total trades).

  • Long Indicators: 124/144 reached avoid-trading levels, tightening by -9.22 bp.

  • Short Indicators: 30/38 reached avoid-trading levels, widening by +5.66 bp.

  • Remaining Longs: 20 widened by +4.54 bp.

  • Remaining Shorts: 9 tightened by -.6.87 bp.

  • Average Spread Movement: ±6.87 bp in the indicated direction.

  • Success Rate: 87% of indicators reached avoid-trading levels, which is slightly below normal.

  • Average trade holding period: 20.5 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.