Systematic Credit and Equity G-255 Trading Indicators for October 27, 2025
Good Morning! A few mistakes in Friday's reports relate to the date, the credit rating for Intel (Baa2/BBB), and the Ford equity systematic short trade indicator, which is $13/share. Friday's risk trading focused first on the reaction to Chinese trade negotiations and second on U.S. earnings.
Friday October 24 G – 255 earnings reports
Key Takeaways from Friday's and last week's Earnings Reports:
We again saw equity and credit markets respond to the focus on "exceeding estimated adjusted earnings" on Friday. We have noted that underlying equity prices, where cash flow generation is not strong, languish over time. Credit trading is different; the shine from beating "equity analysts' expectations" typically lasts three trading days or less. General Motors (GM) and Ford (F) are the two U.S. equities that have rallied the most post-earnings. Both equities now have short trade indicators.
On Friday, HCA showed the strongest unit or volume growth among non-financial issuers, with third-quarter same-facility revenue rising 2.1% year-over-year (YoY) and third-quarter same-facility admissions increasing 2.4% YoY. Pricing drove HCA's positive results, with third-quarter revenue per admission rising 8.1% YoY.
We continue to see cash flow expansion from non-financial issuers, where almost all cash flow growth results from pricing and cost reduction.
Of the 59 G-255 issuers that have reported results, three fewer issuers are adding net debt to their balance sheets.
Friday's CPI report and UST Treasury Curve:
Friday's 3.0% YoY CPI and core CPI report for September 30 shows negative YoY progress on reducing headline CPI and negative progress over the past six months on core CPI. This does not imply that past Federal Reserve statements about policy will impact their policy decision next week. There will be no October CPI report, regardless of when the U.S. government shutdown occurs. While the cost of shelter, groceries, and energy has kept reported inflation at the 3% level, costs for most other essentials are rising faster than 3%.
In 2025, 10-year U.S. Treasuries have rallied by 60 basis points, and 5-year U.S. Treasuries have dropped by 77 basis points in yield. Market questions no longer center on the Federal Reserve's policy next week or their statement following a rate cut. Rather, the focus is on where U.S. Treasuries will trade from here.
Trading Model Output:
Credit trading indicators returned to 65% above average for short trade indicators and 60% below average for long trade indicators on Friday. Flows into corporate credit vehicles were materially higher in the week ended October 22. The model's credit trade indicator adjusted allocation as a result.
Credit Market Model Indicators:
Both U.S. Investment Grade and High Yield systematic trading indicators show USD credit as overvalued. Similarly, the underlying equity value of 237 of the world's 255 largest issuers of corporate debt remains overvalued. The model's overall credit long/short indicators changed again overnight.
Trading Model Indicators and Strategy for Friday:
After this week's U.S. ETF and mutual fund flow data, the stochastic model continues to identify long opportunities in deleveraging new supply and deleveraging new supply trading behind new issue spreads.
Top 2 Short-Indicated Sectors:
USD Single A Healthcare
BBB Autos (All currencies)
Top 3 Long-Indicated Sectors:
US Regional Banks (USD)
U.S. Single A TMT (USD/EUR)
U.K. 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 Friday:
U.S. September CPI rose 3.0% YoY and +0.3% MoM
U.S. September Core CPI rose 3.0% YoY and +0.2% MoM
University of Michigan 1-year inflation expectations remained at 4.6% YoY in October
University of Michigan 5–10-year inflation expectations rose to 3.9% from 3.7% in October
Investment-Grade (IG) Trading
Volume: -1 % below average.
G-255 Issuers: 99 of the top 100 traded issuer bonds accounted for 99% of top 100 issuer volume and 82% of total TRACE volume.
High-Yield (HY) Trading
Volume: +7% above average.
G-255 Issuers: 13 of the top 25 traded bonds accounted for 58% of top 25 issuer volume and 62% of total TRACE volume.
Friday Credit Market Movement
U.S. CDX Index: -0.6 bp at 48.5 bp.
U.S. IG Cash Spreads: were (-1 to -3bp) tighter IG Energy outperforming.
CDX HY Index: fell +.3 @107.5 (per Bloomberg).
HY Cash Bonds: Were tighter Friday with Non – IG TMT outperforming.
High-Yield Activity
• Dealers sold $50 million of high yield bonds on Friday.
Most Bought HY Bonds: CCO holdings (CHTR B1/BB- attractive long)
Most Sold HY Bonds: Versant Media (VSNT Ba2/BB)
Investment Grade Activity
Dealers sold $200mm of IG bonds on Friday.
Most Bought Sector: US Regional Banks
State Street Corp (STT Aa3/A attractive long)
Capital One Financial (COF Baa1/BBB attractive long)
Most Sold Sector: BBB TMT
Oracle (ORCL Baa2/BBB attractive short)
Verizon (VZ Baa1/BBB+ attractive long)
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 Insight: The stochastic credit trading model identifies 133 undervalued bonds ($192 billion market value), with 43 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,428 bonds ($2.248 trillion) are overvalued per the stochastic credit trading model, with 828 short trade indicators.
U.S. Big 6 Banks (all ratings): Are no longer a sector short trade indicator as of October 23.
Single A and BB Energy: 101 bonds ($157.5 billion) overvalued, with 60 short indicators.
Single A Healthcare: Is no longer a sector short trade indicator as of October 23.
Single A Industrials: Are no longer a sector short trade indicator as of October 23.
BBB Autos: 76 bonds ($92.1 billion) overvalued, with 63 short trade indicators
G-255 Issuer News Over the weekend
U.S. Transportation Secretary Sean Duffy warned that travelers will face increased flight delays and cancellations in the coming weeks as the U.S. government shutdown exacerbates the air-traffic controller staffing shortage. Delta Airlines (DAL, Baa2/BBB-) and American Airlines (AAL, Ba1/BB+) both have attractive long credit/equity indicators. United Airlines (UAL, Ba1/BBB-) has short credit/equity indicators.
Novartis AG (NOVN.VX, Aa3/AA-, attractive short credit/long equity) agreed to acquire biotech company Avidity Biosciences. Novartis will pay $72 per share in cash, totaling $12 billion, representing a 46% premium.
U.S. IG Credit Valuation and Spreads
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 44.7% 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 59 of the world's 255 largest issuers of corporate debt record 137 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: -24 bp YoY and -57 bp YTD.
Bloomberg 10Y credit spreads are derived by taking the Moody's relevant index yield and subtracting the UST 10Y YTM.
Global Equity Correlation to IG Credit Spreads
U.S. equities and credit markets showed correlation for a fourth consecutive trading day on Friday. As written on Wednesday, the underlying correlation between U.S. equity prices and 10-year U.S. credit spreads is a mathematical certainty. The number of trading days in which the direction of the two markets varies in a given year is based on exogenous factors. While the statistical average of directional correlation between the SPX and U.S. credit spreads is close to 80% over the past 33 years, the range of correlation varies between 74% and 83%.
New USD G-255 supply and fund flow data
No G-255 issuers sold new bonds in the US, UK, or Europe on Friday.
34 G-255 issuers have sold bonds in the UK and Europe since September 15. 53 bonds totaling €63 billion have been issued. Conversely, post the U.S. government shutdown, just 12 G-255 issuers have sold USD debt totaling $39 billion. Only 11% of the new USD supply has come from non-financial issuers. We note that we have seen $26 billion of G-255 public debt retirement in October and increased inflow into Corporate credit ETFs and mutual funds last week.
Systematic Trading Model Indicators and Strategy
Attractive Long Indicators: 43, -15 from Friday and -46% below the 200 day moving average of all model long trade indicators.
Attractive Short indicators 823, +195 from Friday and +64% above the 200 day moving average of all model short trade indicators
Systematic Portfolio Trading Model Indicators
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 65% 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 long trade reached it's avoid trading level. The trading model added 3 long indicators and 1 short indicator.
Systematic Credit Trading Strategy – October 23, 2025
Closed Positions: Last week, State Street (Aa3/A+) STT 5.784 10/23/36, added as new indicator reached it's avoid trading level Thursday
Enter New Longs: State Street (Aa3/A+) STT 5.784 10/23/36 was added as a long trade indicator as part of Monday's new supply. On Friday ATT (Baa2/BBB) T 4.55 11/01/32 and Capital One (Baa1/A-) COF 5.197 09/11/36 (long indicators);
Enter New Short Trades: The trading model indicator: General Motors Financial (Baa2/BBB) GM 2.7 06/10/31 (short indicator) post new GM supply on last Wednesday
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 re-leveraging issuers (avoiding 7-year maturities) at a 1:1 ratio for any additional long positions.
Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic strategy.
Friday's Basket Trade Long/Short Ratio: 64%
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 Friday: None
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – October 24, 2025)
Performance Summary: Total Trades: 176 (1% of total trades).
Long Indicators: 122/138 reached avoid-trading levels, tightening by -9.27 bp.
Short Indicators: 29/38 reached avoid-trading levels, widening by +5.62 bp.
Remaining Longs: 16 tightened by -.49 bp.
Remaining Shorts: 9 tightened by -11.58 bp.
Average Spread Movement: ±6.80 bp in the recommended 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.