Systematic Credit and Equity G-255 Trade Indicators for November 3, 2025
Good morning. A combination of month end credit trading, the hype of the additional off – balance sheet debt from Meta, poor earnings reports from Comcast (CMCSA) and Charter Communications left US risk markets going in opposite directions. Communications and TMT names in general underperformed significantly in both the US corporate and equity markets. While month end trading appeared to be in part, reaction to US Federal Reserve Governors pushing back in further rate cuts for now.
We saw 10 more issuers report results (we are playing catch up with earnings digest write – ups) but the picture is now clear. The sector with the most issuers now adding debt is BBB Auto followed by BBB Healthcare. Sectors where issuers are reducing debt is UK banks and Single A rated Autos. Thursday's $30 billion new Meta deal and the prospect of more mega deals in that space to fund asset purchases moved TMT spreads wider.
Returns to shareholders will set records this year with over $ 1 trillion of those returns funded from corporate balance sheet borrowings.
Weekly US Corporate Bond inflow stagnated a bit in the week ending October 29. The Systematic trading model indicators no longer sees G – 255 issuer equity prices as overvalued. G-255 corporate debt trades at its widest levels since June but is still modestly overvalued. Over half of equities of G – 255 issuers are now within 2.5% of their attractive long levels. US Corporate credit indicators show corporate bonds are still unattractive from valuation perspective.
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 Friday:
October Chicago business barometer rose to 43.8 from 40.6 in September.
Credit Trading Friday
Investment-Grade (IG) Trading
Volume: +95 % above average with META 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: +66% above average.
G-255 Issuers: 11 of the top 25 traded bonds accounted for 46% of top 25 issuer volume and 51% of total TRACE volume.
Friday Credit Market Movement
US CDX Index: wider +.9bp at 48.4 bp (includes -4 bp of forward roll)
US IG Cash Spreads: (+2 to +4 bp) BBB communications underperformed.
CDX HY Index: -0.1 bp at 107.3 (per Bloomberg)
HY Cash Bonds were wider Friday, with TMT again underperforming.
High-Yield Activity
• Dealers bought $2 bill of high yield bonds on Friday.
Most Bought HY Bonds: CCO Holdings (CHTR B1/BB- attractive short)
Most Sold HY Bonds: Talen Energy (TLN B2/B)
Investment Grade Activity
Dealers bought $ 3 billion of IG bonds on Friday.
Most Bought Sector: Yankee Banks
Sumitomo Financial (SUMIBK A2/A- attractive long)
Deutsche Bank (Baa1/BBB attractive long)
Most Sold Sector: Communications (TMT)
Comcast (CMCSA A3/A- attractive long)
Verizon (Baa1 /BBB+ attractive long)
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 197 undervalued bonds ($310 billion market value), with 52 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,469 bonds ($2.32 trillion) are overvalued per the stochastic credit trading model, with 630 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: 79 bonds ($95 billion) are overvalued, with 64 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 42% 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 120 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. bp YoY and -47 bp 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, we finished the month with 29 G-255 issuers selling 71 bonds totalling $101 billion. While financials dominated the new issuer landscape for most of October, the new 6 tranche $30 billion Meta transaction left the month with 48% of new supply coming from non – financials.
according to our trading model owing the competition for demand with the new Meta bonds.
US Equity Correlation to Overall US Credit Spreads
US equities and credit markets went in separate directions Friday as additional Meta balance sheet data, preparation for Oracle and perhaps ATT new supply and month end trading moved US credit spread wider while equity prices rose. 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 Friday's trading? A: No. We need to see a rebound from month-end selling and there are 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: 52, +5 from Friday and -54% below the 200-day moving average of all model long trade indicators.
Attractive Long Market Cap accounts for: 33% of all undervalued Systematic Credit capital.
Attractive Short Indicators 630, -190 from Friday and +24% above the 200-day moving average of all model short trade indicators
Attractive Short Market Cap accounts for: 42% 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 3, 2025:
Closed Positions: United Health (A2/A) UNH 3.05 05/15/41 short trading indicator reached its avoid trading level.
Enter New Longs: On Monday, Broadcom (A3/A-) AVGO 4.8 02/15/36 +2 bp from NIP was added as a new long indicator. 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.
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.
Friday's Basket Trade Long/Short Ratio: 72%
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 Friday: United Health (A2/A) UNH 3.05 05/15/41 short trading indicator reached its avoid trading level.