Systematic Credit and Equity G-255 Trading Indicators for October 15, 2025
Good Morning! Good Morning! We are now up to 7 of the world's largest issuers of corporate debt reporting results, and that helped propel the Dow Jones Industrial Average to rise for a second day while the S&P 500 and NASDAQ retreated. US credit spreads bounced, but it's a bit early to conclude they are recovering.
Overnight, US equity futures and UST Treasuries are higher as the markets discount for a 5th day in 7 a 25 bp cut in the Federal Funds rate when the US Federal Reserve meets in 2 weeks.
US Bank Earnings:
Four of the US' Big 6 banks—JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS)—reported improved results based primarily on higher investment banking revenue. Those issuers also reported that the change in Federal Reserve Capital guidelines led 3 of the 4 banks to spend the most capital in their respective histories on share repurchasing and did so at record high prices. Please see the October 14 earnings digest report for details.
Goldman Sachs (GS), which reported the strongest 3Q results, did not spend record capital on share repurchasing last quarter and deleveraged their balance sheet slightly in the quarter. Like clockwork, GS took advantage of the lack of new supply and sold $10 billion of new bonds in their first USD offering since April.
Conclusions from Tuesday's results:
(1) US banks will continue to add financial leverage to their balance sheets and continue to add to their holdings of marketable securities financed by debt.
(2) Trading and net interest income are not truly growing.
(3) Three of the four banks have a perpetual appetite for their own equity, even at record prices.
Conclusion: You don't want to own many of the Big 6 bank bonds, and you only want to own Big 6 equities (with the exception of Wells Fargo (WFC) at materially lower prices.
Non-Quantitative "Market Color"
Our trading model is completely systematic, meaning it runs (and is traded) solely without any human input or judgment. However, there are a few individuals' comments that move markets in the correct direction.
Fed Chair Jerome Powell spoke to the National Association of Business Economics in Philadelphia, saying that despite the federal government shutdown cutting off official economic data, "the outlook for employment and inflation does not appear to have changed much since our September meeting." Powell spent most of his speech defending the Fed's practice of buying longer-term Treasury bonds and mortgage-backed securities in 2020 and 2021, which were intended to lower longer-term interest rates and support the economy during the pandemic.
Bloomberg is reporting that his statements all but cinch an October Fed rate cut.
Jamie Dimon (JPM CEO) stated Tuesday that the bank had taken a US$170 million charge against loans made to Tricolor, the subprime car loan group that concentrated on extending credit to immigrants in poorer parts of America: "It is not our finest moment," Dimon said on a call with analysts. "When something like that happens, you could assume that we scour every issue … You can never completely avoid these things, but the discipline is to look at it in cold light and go through every single little thing." "They know what they're doing, they've been around a long time, but they're not all very smart." Hence his stated concern about bank credit quality on Tuesday's call.
Earnings Reports Wednesday
Today we hear results from Prologis (PLD), Synchrony Financial, PNC Corp (PNC), Bank of America (BAC), and Morgan Stanley (MS) and will have a picture of over half the large-cap US bank credit by 8:15 AM EDT.
Trading Model Output
Credit trading indicators increased to slightly higher than average short trade indicators and 50% below average for long trade indicators. We will see credit ETF flow data later this AM.
Credit Market Model Indicators
Both US Investment Grade and High Yield systematic trading indictors show USD credit now modestly overvalued. Similarly, underlying equity value of 240 of the world's 255 largest issuers of corporate debt remain overvalued even after Tuesday trading.
Trading Model Indicators and Strategy for Wednesday
Corporate bond flows for the week ending October 8 were rose when compared with the week ended October 1. After Tuesday's trading, the stochastic model continues to view US credit valuations as slightly overvalued, identifying long opportunities in deleveraging new supply.
Top 3 Short-Indicated Sectors
Single A Industrials (USD)
USD Single A Healthcare
Single A Energy (USD)
Top 3 Long-Indicated Sectors
Yankee French Banks (USD/EUR)
U.S. Single A TMT (USD/EUR)
U.K. Banks (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
Same-store sales rose 5.9% in the October 11 week compared to a year earlier, Johnson Redbook says.
Month-to-date sales through Oct. 11 rose 5.9%
Tuesday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: -24 % below average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 97% of top 100 issuer volume and 74% of total TRACE volume.
High-Yield (HY) Trading
Volume: +4% above average.
G-255 Issuers: 15 of the top 25 traded bonds accounted for 55% of top 25 issuer volume and 52% of total TRACE volume.
Tuesday Credit Market Movement
U.S. CDX Index: -3.6 bp at 47 bp.
U.S. IG Cash Spreads: were (-2 to -5bp) tighter Healthcare outperforming.
CDX HY Index: rose +.7 @107.45 (per Bloomberg).
HY Cash Bonds: Were tighter led by HY financials.
High-Yield Activity
• Dealers sold $400mm of high yield bonds on Tuesday.
Most Bought HY Bonds: Venture Global (VENTGL Ba1/BBB-)
Most Sold HY Bonds: New Fortress Energy (NFE C/CCC-)
Investment Grade Activity
Dealers sold $1.4 bil of IG bonds on Tuesday.
Most Bought Sector: A rated TMT
META Platforms (META Aa3/AA- attractive long)
Comcast (CMCSA A3/A- attractive short)
Most Sold Sector: A rated Energy
BP (BPLN A1/A- attractive short)
TotalEnergies (TTEFP Aa3/A+ attractive short)
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 ($245.2 billion market value), with 55 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,465 bonds ($2.292 trillion) are overvalued per the stochastic credit trading model, with 606 short trade indicators.
U.S. Big 6 Banks (all Ratings): 303 bonds ($754 billion) overvalued, with 98 short indicators.
Single A and BB Energy: 89 bonds ($128 billion) overvalued, with 40 short indicators.
Single A Healthcare: 114 bonds ($165 billion) overvalued, with 67 short indicators.
Single A Industrials: 97 bonds ($106.2 billion) overvalued, with 41 short indicators.
G-255 Issuer News
French Prime Minister Sebastien Lecornu secured the Socialist Party's support in France's National Assembly, bolstering his government's prospects of surviving two no-confidence votes. The Socialists agreed not to support efforts to topple Lecornu's government after he proposed suspending a pension law that increases the retirement age, meeting a key condition for their backing.
French banks BPCE (BPCEGP Baa1/BBB+), BNP (BNP Baa1/A-), Societe Generale (SOCGEN Baa2/BBB), Credit Agricole (ACAFP A3/A-) all have long credit indicators and the 3 public equities (BNP, GLE ACA) also have long trade indicators.
Stellantis NV (STLA Baa2/BBB- attractive short both credit and equity) announced a $13 billion investment in the United States over the next four years to revitalize its operations and mitigate the impact of tariffs. Key initiatives include Increasing annual finished vehicle production by 50%, adding over 5,000 jobs at factories in Illinois, Ohio, Indiana, and Michigan. Launching five new vehicle models.
U.S. IG Credit Valuation and Spreads
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 22% of the widening observed from November 12, 2024, to April 10, 2025.
Model Valuation: IG and HY markets show overvaluation. Post earnings announcements from 7 of the world's 255 largest issuers of corporate debt record 140 are increasing leverage.
2025 10-Year Credit Spreads
Year-over-Year (YoY): Wider compared to last year.
Year-to-Date (YTD): Wider YTD.
UST 10-Year Rates: -2 bp YoY and -56 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
US equities and credit markets moved in opposite directions for a 7th trading day in 23, as US equity prices were mixed while US credit spreads tightened Tuesday. The historical 80% directional correlation between US equity prices and US HY and IG credit spreads has weakened in 2025 due to changes in sector weightings in US equity and bond indices and the inclusion of non-US (Yankee) issuers in bond indices. Corporate credit continues to tighten despite the US government shutdown, supported by limited new supply. US equities typically rally following government shutdowns.
New USD G-255 supply and fund flow data
Goldman Sachs (GS) became the first G – 255 USD issuer on Tuesday selling $10 billion of new bonds supply in 5 bonds. Clearly, new bank capital rules is leading to greater financial leverage with large US banks.
Historically speaking, GS new 11nc10 TLAC bonds are priced aggressively. While they ultimately perform, 3 of the past new issue 10Y bonds have traded wider before they traded tighter. Both the fixed and FRN 4nc3 and the fixed 6nc5 were priced attractively according to our trading model.
Last week was the strongest week in 5 for inflow to US credit funds and this we saw an additional $5 billion of G-255 bond redemptions leaves significant sideline cash for new supply.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 606, +84 from Tuesday +25% above the 200 day moving average of all model short trading recommendations.
Attractive Long indicators 55, +8 from Tuesday.
Systematic Portfolio Trading Model Indicator:
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: Do add new supply trades where issuer is de-levering; add new issue bonds where spreads widened by +2 basis points.
Current Status of trading indicators below:
Last week 1 long trade and 1 short trade reached their avoid trading level and was replaced by 1 new secondary long trade indicator.
Systematic Credit Trading Strategy October 14, 2025
Closed Positions: BMW (A2/A) BMW 4 1/2 08/11/30 reached its avoid trading level last week. The General Motors (Baa2/BBB) GM 5.45 09/06/34 reached its avoid trading level on Friday.
Enter New Longs: Last week the trading model added Capital One (Baa1/A-) COF 5.197 09/11/36 as a long trade +2bp to new issue spread. The Broadcom (A3/A-) AVGO 4.8 2/15/36 trading +5bp to new issue spread was the new issue trade indicator added on Friday.
3. Enter New Short trades: The trading model indicators show adding short trades and for each new long added.
4. Monitor Trade Position Composition:
• Track the percentage of long positions relative to the total portfolio.
• If replacing the long positions that have reached their avoid trading level pushes the portfolio above the 65% long hurdle, initiate short positions in re-levering issuers (avoiding 7-year maturities) at a 1:1 ratio for any additional long positions.
5. Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic
6. Tuesday's Basket Trade long/ short ratio 65.2%
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 Tuesday: None.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – October 15, 2025)
Performance Summary: Total Trades: 172 (1% of total trades).
Long Indicators: 120/135 reached avoid-trading levels, tightening by -9.31 bp.
Short Indicators: 29/37 reached avoid-trading levels, widening by +5.62 bp.
Remaining Longs: 15 widened by +4.31 bp.
Remaining Shorts: 8 tightened by -10.7 bp.
Average Spread Movement: ±6.59 bp in the indicated direction.
Success Rate: 86% of indicators reached avoid-trading levels, which is slightly below normal.
Average trade holding period: (20.1 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.