Systematic Credit and Equity G-255 Trading Indicators for October 23, 2025
Good Morning! Equity futures are unchanged this morning, and U.S. Treasuries are lower as the lack of progress on the U.S. government shutdown and government-sponsored economic data begins to create the capital outflow out of the U.S. we have written about but have yet to quantify. So, as we are in the middle of a significant week of earnings and now have earnings announcements from 45 of the world's 255 largest issuers of corporate debt, a record 139 are increasing leverage. While financial institutions are reporting record 3Q profit, "the moment is over." Three quarters does not equal a full year. We will have much more on that over the weekend (yes, over the weekend when we publish our first complete sector reports with all the indicators and bonds that have been requested).
As to the non-financial issuers that have reported yesterday, the theme continues: No unit or volume growth
Issuer Credit indicator Equity Indicator
ATT (T, Baa2/BB attractive long) unchanged Long @ current price
Thermo Fisher (TMO A3/A- attractive short) unchanged Long below $498/shr.
IBM (IBM A3/A- attractive short) unchanged Long below $269 / shr
Crown Castle (T Baa2/BBB attractive short) unchanged Long @ current price
Kinder Morgan (KMI Baa2/BBB attractive short) unchanged Long @ current price
Key Takeaways from Yesterday's Earnings Reports: US economy is slowing rapidly, inflation is not.
U.S. economy is slowing rapidly; inflation is not. Now, before I go any further, I am not making any U.S. economic predictions. Rather, a statement of facts:
1. U.S. unit or volume growth for issuers reporting thus far is (on average) less than +1% YoY.
2. Pricing remains buoyant and ranges anywhere from +4% to 10%.
More Empirical Data
1. The weekly railcar data we post is echoing what we have heard from the 20 non-financial issuers that have reported—shipments are negative.
2. The weekly Redbook comparable store sales number is now at 5% despite 15,000 retail closures YoY.
Make no mistake, the majority of revenue and cash flow growth at the large corporate level is coming from price increases. As to what the U.S. economic data shows (when it is reported), it becomes less relevant to the discussion as time passes.
"Adjusted Earnings"
The word "adjusted" and the phrase "non-GAAP reconciliation" appear over 4,200 times in the 48 reports we have seen. If not for the fact that 7 of the reports came from non-U.S. banks, the allusion that the markets are at all focusing on the actual "Generally Accepted Accounting Principles" is just that, an "illusion."
Equity "Valuations"
According the experts, US equities trade at 34x "adjusted earnings." Take away the "adjustments," and the current P/E of the U.S. equity market? Answer: Well, you can't count that high. Our trading model says roughly 18% of the equities among the current "unloved" 255 largest global issuers have long trade indicators.
Credit Valuation
Five weeks ago, when our credit trading model short indicator went over 1,100, we noted that in the following two weeks, credit spreads were stochastically seen as (+5 to 10bp) wider. I was wrong. It took 4½ weeks for the spread widening to occur.
Trading Model Output:
Credit trading indicators are 3% below average for short trade indicators and 47% below average for long trade indicators on Wednesday. Flows into credit ETFs were higher in the week ended October 21 but only for high-yield corporate bond ETFs. We will see mutual fund flow data for the week ended October 22 shortly.
Credit Market Model Indicators:
Both U.S. Investment Grade and High Yield systematic trading indicators show USD credit as modestly overvalued. Similarly, the underlying equity value of 240 of the world's 255 largest issuers of corporate debt remains overvalued. The trading model has made numerous changes in sector credit indicators overnight.
Trading Model Indicators and Strategy for Thursday:
After Wednesday's trading, the stochastic model continues to identify long opportunities in deleveraging new supply and deleveraging new supply trading behind new issue spreads. We see ETF credit flow data this AM.
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:
45% Long: Undervalued, deleveraging bonds.
35% 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 Wednesday:
U.S. weekly rail traffic was 497,854 carloads and intermodal units, fell -2.6% for the week ended 18 October compared with the same week last year.
Total carloads rose 0.3% compared with the same week in 2024, while U.S. weekly intermodal volume was 273,610 containers and trailers, down -4.8% compared to 2024.
Wednesday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +3 % above average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 77% of total TRACE volume.
High-Yield (HY) Trading
Volume: -6% below average.
G-255 Issuers: 15 of the top 25 traded bonds accounted for 54% of top 25 issuer volume and 61% of total TRACE volume.
Wednesday Credit Market Movement
U.S. CDX Index: +0.3 bp at 49.1 bp.
U.S. IG Cash Spreads: were (+1 to +3bp) wider Yankee Financials underperforming.
CDX HY Index: fell -.2 @107.1 (per Bloomberg).
HY Cash Bonds: Were wider Wednesday with Non – IG TMT underperforming.
High-Yield Activity
• Dealers sold $1000 million of high yield bonds on Wednesday.
Most Bought Warner Media (WBD Ba2/BB attractive long)
Most Sold HY Bonds: CCO holdings (CHTR B1/BB- attractive long)
Investment Grade Activity
Dealers sold over $2 billion of IG bonds on Wednesday.
Most Bought Sector: Big 6 banks
Bank of America (BAC A1/A- attractive short)
JP Morgan (JPM A1/A attractive short)
Most Sold Sector: Single A TMT
Apple (AAPL Aaa/AA+ attractive long)
Amazon (AMZN A1/AA 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 166 undervalued bonds ($249 billion market value), with 58 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,388 bonds ($2.196 trillion) are overvalued per the stochastic credit trading model, with 664 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: 99 bonds ($155.3 billion) overvalued, with 52 short indicators.
Single A Healthcare: Are 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 47 short trade indicators
G-255 Issuer News
Williams Company (WMB) is in the process of selling its minority interest in South Mansfield upstream to JERA for $398 million plus deferred payments through 2029.
Williams is entering a strategic partnership with Woodside Energy to invest in a Louisiana LNG export facility. Williams will acquire 80% of and become operator of Driftwood Pipeline, which includes construction of a fully permitted greenfield pipeline connecting Woodside's Louisiana LNG facility to multiple pipelines for almost $2 billion.
Williams (WMB Baa3/BBB+, attractive short credit/attractive long equity) reports 3Q results on November 3.
U.S. IG Credit Valuation and Spreads
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 39.5% 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 45 of the world's 255 largest issuers of corporate debt record 139 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: -26.2 bp YoY and -58.5 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 second consecutive trading day on Wednesday. As noted yesterday, the correlation between 10Y USD credit spreads and U.S. equities is near a 32-year low of 74%.
As written yesterday, 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
General Motors Financial (GM) became the 7th G-255 issuer to sell USD bonds post reporting 3Q earnings on Wednesday with an aggressively priced 3-year deal that did trade well in the aftermarket. Bank of America (BAC) opted to sell €1.75 billion 6nc5 fixed and €1 billion 6nc5 FRN on Wednesday.
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 we have seen $22 billion of G-255 public debt retirement in October.
Net inflows to ETFs totaled $11.3 billion in the week ended Oct. 21, 2025, including the effect of leveraged funds, compared with $9.19 billion the prior week.
Broad bond-market ETFs expanded by $90.2 million to $4.34 billion.
Corporate bond ETFs expanded by $1.6 billion to $2.58 billion.
Investment-grade ETFs expanded by $376.2 million to $7.61 billion, and high-yield ETFs swung by $1.5 billion to $971 million.
iShares U.S. Treasury Bond ETF had the biggest inflow, of $1.87 billion.
Dedicated Investment Grade Corp Inflow improved by +$150 million WoW.
Dedicated High Yield funds swung from outflow to +$516 million WoW.
Systematic Trading Model Indicators and Strategy
Attractive Long Indicators: 59, -2 from Wednesday and -46% below the 200 day moving average of all model long trade indicators.
Attractive Short indicators 495, -161 from Wednesday and -1.5% below 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 its avoid trading level.
Systematic Credit Trading Strategy – October 22, 2025
Closed Positions: Last week, Broadcom (A3/A-) AVGO 4.8 02/15/36, added +5 bp behind new issue spread, reached its avoid trading level.
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.
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 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.
Wednesday's Basket Trade Long/Short Ratio: 63.6%
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 Wednesday: Model adds General Motors Financial (Baa2/BBB) GM 2.7 06/10/31 (short indicator) post new GM supply
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – October 22, 2025)
Performance Summary: Total Trades: 172 (1% of total trades).
Long Indicators: 121/135 reached avoid-trading levels, tightening by -9.28 bp.
Short Indicators: 29/37 reached avoid-trading levels, widening by +5.62 bp.
Remaining Longs: 15 widened by +3.59 bp.
Remaining Shorts: 8 tightened by -9.53 bp.
Average Spread Movement: ±6.68 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.