Systematic Credit and Equity G-255 Trading Indicators for October 30, 2025
Good morning. I received more inquiries yesterday than I have in months. The market is laser-focused on the Fed and interest rates. Since everyone else is writing about it, I'll attempt to simplify for bond trading purposes, where US Treasuries actually trade matter far more than if, when, or how much the Fed cuts rates.
The Fed has cut rates by 125 bps over the past 13 months. Yet the 2–3Y UST curve still trades at or below the Fed Funds rate. Result? Negative carry.
The same holds for the 5Y UST. Even if you fund at FF +60, the 10Y UST won't help. A corporate trading +30–40 bps to the front end of the curve carries significant negative carry for anyone using leverage to own bonds 5Y and shorter.
Even more curious: what exactly are bond funds "locking in" by buying 3–5Y high-grade corporates at UST +50?
Corporate bond fund flows come from outperforming (not underperforming) USTs. The only time Fed Funds matters is when leveraged players can earn positive carry (bond yield minus funding cost). If USTs don't rally further — "I'm sorry, Ghost Rider, the pattern is full." (Apologies — with 52 issuers reporting this week, I needed a Top Gun line.)
*Write up will be in this afternoon's earnings digest.
98 issuers have reported since October 8.
7 that were adding net debt in Q2 2025 are now reducing leverage.
7 others that were cutting debt in Q2 are now adding leverage.
More importantly: outside mega-tech, HCA, Philip Morris, and select Pharma, the market is buying "rebounding earnings" that aren't actually rebounding.
Caterpillar: positive unit volume, negative pricing
Consumer names: no volume, positive pricing only
G-255 laggards (Fiserv, Boeing, wireless): not a pretty story
Global banks report great headline numbers, but not great banking earnings numbers — loan growth is flat.
Transports: no volume, no pricing.
Bank loans: not growing.
That does not bode well for the US or global economy
Weekly US ETF Bond flow was stronger week over week according to data on Bloomberg. The Systematic trading model indicators are still modestly overvalued for both the corporate bonds and equities of the 255 largest issuers of corporate debt.
Top Short-Indicated Sector:
BBB Autos (All currencies)
Top 3 Long-Indicated Sectors:
US Regional Banks (USD)
U.S. Single A TMT (USD/EUR)
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 Wednesday:
US rail carloads for the October 25 were fell -0.9% when compared with the same week in 2024, while U.S. weekly intermodal volume was 272,940 containers and trailers, - 6.1% YoY.
Credit Trading Wednesday
Investment-Grade (IG) Trading
Volume: -6 % below average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 99% of top 100 issuer volume and 84% of total TRACE volume.
High-Yield (HY) Trading
Volume: -605% below average.
G-255 Issuers: 13 of the top 25 traded bonds accounted for 58% of top 25 issuer volume and 50% of total TRACE volume.
Wednesday Credit Market Movement
US CDX Index: unchanged at 46.4 bp (includes -4 bp of forward roll)
US IG Cash Spreads: (-1 to -3 bp) BBB financials outperformed.
CDX HY Index: -0.1 bp at 107.6 (per Bloomberg)
HY Cash Bonds Tighter Wednesday, with non-IG Consumer TMT outperforming.
High-Yield Activity
• Dealers bough $200mm of high yield bonds on Wednesday.
Most Bought HY Bonds: Pemex (PEMEX B1/BBB)
Most Sold HY Bonds: Avis Budget Car Rental (CAR B1/B)
Investment Grade Activity
Dealers sold $100mm of IG bonds on Wednesday.
Most Bought Sector: Euro Banks
BNP (BNP Baa1/A- attractive short)
Deutsche Bank (DB Baa1/BBB attractive long)
Most Sold Sector: BBB TMT
Fiserv (Baa2 Baa2/BBB attractive short)
T – Mobil (TMUS 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 127 undervalued bonds ($189 billion market value), with 41 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,472 bonds ($2.28 trillion) are overvalued per the stochastic credit trading model, with 972 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: 83 bonds ($99.8 billion) are overvalued, with 72 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 76% 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 98 of the world's 255 largest issuers of corporate debt 140 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: -23.2 bp YoY and -50 bp YTD.
Bloomberg 10Y credit spreads are derived by taking the Moody's relevant index yield and subtracting the UST 10Y YTM
No New G-255 supply on Wednesday owing to the US Federal Reserve Bank meeting
Taxable bond ETFs saw estimated net issuance of $9.29 billion, and municipal bond ETFs had estimated net issuance of $1.39 billion.
According to Bloomberg ETF tracker:
Investment grade corporate ETFs had $2.04 billion of net inflow last week.
High Yield corporate ETFs had $1.44 billion of net inflow last week.
G-255 Issuer News Wednesday
Thermo Fisher Scientific Inc (TMO A3/A- attractive short credit/ attractive long equity). agreed to acquire Clario Holdings Inc. for about $8.9 billion in cash.
The deal includes potential future payments of as much as $525 million and will give Thermo Fisher access to Clario's clinical data management capabilities.
US Equity Correlation to Overall US Credit Spreads
US equities and credit markets showed negative directional trading correlation for a second US trading day in seven as US credit was tighter on Wednesday and US Equities were slightly lower owing to higher UST yields.
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%.
Attractive Long Indicators: 41, -11 from Wednesday and -63% below the 200-day moving average of all model long trade indicators.
Attractive Long Market Cap accounts for: 31% of all undervalued Systematic Credit capital
Attractive Short Indicators 972, +92 from Wednesday and +92% above the 200-day moving average of all model short trade indicators
Attractive Short Market Cap accounts for: 63% 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 long trade reached its avoid trading level. The trading model added three long indicators and one short indicator.
Systematic Credit Trading Strategy – October 30, 2025:
Closed Positions: Capital One (Baa1/A-) COF 5.197 09/11/36 additions +2 bp and +4 bp to NIP reached their avoid trading level on Monday.
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.
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 changes overnight: Historic trading levels are leading to overnight adjustments to long, short and avoid indicator levels.
Thursday's Basket Trade Long/Short Ratio: 66.7%
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 Wednesday: None
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – October 29, 2025)
Performance Summary: Total Trades: 180 (1% of total trades).
Long Indicators: 124/141 reached avoid-trading levels, tightening by -9.22 bp.
Short Indicators: 29/38 reached avoid-trading levels, widening by +5.62 bp.
Remaining Longs: 17 tightened by -1.65 bp.
Remaining Shorts: 9 tightened by -13.41 bp.
Average Spread Movement: ±6.77 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.