Systematic Credit and Equity G-255 Trading Indicators for September 29, 2025
Good Morning! Risk indicators strengthened slightly on Friday as U.S. spending and core price inflation data drove markets higher, fueled by forward inflation assumptions. Overnight, Far East markets followed the U.S. market upward, with U.S. equity futures showing a steady upward trend as of this writing. Credit spreads tightened on Friday after three days of widening. With month- and quarter-end trading over the next two days, alongside a potential U.S. federal government shutdown and upcoming earnings reports from Carnival (CCL), Jefferies (JEF), and Tesco (TSCO LN) which may impact how the markets trade.
Credit Market Model Indicators:
Our trading model reached a 2025 peak for net short credit last Tuesday, with credit spreads widening by approximately 3 basis points (bp) since then. Longer-dated credit spreads remain wider than last year's five-year tight levels reached in November.
The model identifies recent new supply from deleveraging issuers as the only attractive long trade indicators.
Key Economic information Friday
August Core PCE: +0.2% MoM
Personal Spending: +0.6%
Personal Income: +0.4%
PCE Prices: +0.3% MoM, +2.7% YoY
Trading Model Indicators and Strategy for Monday
Our systematic trading model indicates USD high-yield (HY) and investment-grade (IG) credit as overvalued. Inflows into non-USD funds are growing, though at a slower pace. Post-Friday trading, 7-year credit remains the most attractive maturity sector.
Today's Systematic Trading Sector Indicators
Top 3 Short-Indicated Sectors:
Big 6 Senior Bank Holdco (USD only)
USD Single A Healthcare (USD only)
Single A Industrials (USD only)
Top 3 Long-Indicated Sectors:
U.S. Regional Banks (USD)
U.S. BBB/BB TMT (USD and EUR)
U.K. Banks (all currencies)
USD Systematic Trading Model
The model continues to suggest U.S. credit is overvalued, with wider spreads likely over the next two trading days.
Trading Allocation Strategy
42% Long: Undervalued, deleveraging bonds.
38% Short: Overvalued bonds in re-leveraging sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 168 long/short trades in 2025 (marked via TRACE), 89% achieved ±5 bp targets, averaging ±6.95 bp per trade.
Risk Management
The model avoids adding risk to G-255 issuers reporting within 30 days, as global regulatory requirements for reported material events could impact trading without notice.
Friday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +29% above average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 71% of total TRACE volume.
High-Yield (HY) Trading
Volume: 25% above average.
G-255 Issuers: 13 of the top 25 traded bonds accounted for 44% of top 25 issuer volume and 50% of total TRACE volume.
Friday Credit Market Movement
U.S. CDX Index: -.6 bp at 47.95 bp.
U.S. IG Cash Spreads: (-1bp) tighter with Single A and BBB Energy outperforming.
CDX HY Index: +.2bp @ 107.8 (per Bloomberg).
HY Cash Bonds: Were tighter with BB Energy outperforming.
High-Yield Activity
• Dealers bought $ 1.1 billion of HY bonds on Friday.
Most Bought HY Bonds: Petroleos Mexicanos (PEMEX B1/BBB attractive short)
Most Sold HY Bonds: CCO Holdings (CHTR B1/BB-)
Investment Grade Activity
Dealers sold $2 bil of IG bonds on Friday.
Most Bought Sector: BBB TMT
Oracle (ORCL Baa2/BBB attractive short)
AT&T (T BAA2/BBB attractive long)
Most Sold Sector: Healthcare Providers
HCA (HCA Baa3/BBB- attractive short)
United Health (UNH A2/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: The stochastic credit trading model identifies 111 undervalued bonds ($162 billion), with 29
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,569 bonds ($2.44 trillion) are overvalued per the stochastic credit trading model, with 1010 short trade indicators.
U.S. Big 6 Banks (All Ratings): 306 bonds ($761.3 billion) overvalued, with 219 short indicators.
Single A and BB Energy: 110 bonds ($182.6 billion) overvalued, with 70 short indicators.
Single A Healthcare: 117 bonds ($170 billion) overvalued, with 80 short indicators.
Single A Industrials: 99 bonds ($109.1 billion) overvalued, with 61 short indicators.
G-255 Issuer News
Occidental Petroleum Corp. is in talks to sell its OxyChem petrochemical unit in a deal worth at least $10 billion.
The divestment would be the US company's biggest yet and would create one of the world's largest standalone petrochemical companies.
Occidental Petroleum (OXY Baa3/BB+) credit and equity both have long trade indicators.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 38% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation
The systematic credit trading indicator (Investment Grade and High Yield) shows overvaluation. A record 140 of the world's 255 largest corporate debt issuers, the highest in the 34-year history of the trading model, are increasing leverage on their balance sheets.
2025 10-Year Credit Spreads
Year-over-Year (YoY): 10-year credit spreads are slightly wider compared to last year.
Year-to-Date (YTD): Spreads are wider YTD.
UST 10-Year Rates: Up +38 basis points (bp) YoY but down -39.5 bp YTD.
Global Equity Correlation to IG Credit Spreads
U.S. equities correlated directionally with U.S. equity price movements for the 11th trading day in the last 13. We are now in a quiet period for earnings reports, and we appear headed for a US Government shutdown. Historically, U.S. equities rally after the shutdown ends. U.S. corporate debt valuations are no longer at all- time tights. USD 10-year credit and equity prices have correlated on 147 out of 198 trading days. This There is an 80% historical correlation between U.S. equity prices and 10-year U.S. corporate credit spreads. 2025 is the fifth lowest correlation (74%) on record.
New USD G-255 supply and fund flow data
No new G – 255 new supply on Friday. We do expect $20 - $23 billion of supply next week but are uncertain as to how much of the new supply will be G-255 issuers.
September has been the largest month of the year for G – 255 issuers with 62 issuers selling 151 bonds totaling $151 billion of new supply.
Overall US IG corporate bond inflows for ETF + mutual funds were $2.7 billion last week – roughly $600mm lower WoW
Overall US HY corporate bond outflows were $350mm this week – roughly $1.44 billion lower.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1011, +59 from Friday +97% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 28, -1 from Friday.
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Focus on deleveraging new issues with attractive valuations, targeting 5-year maturities.
Short Positions: Target re-levering issuers trading at the deepest discount from their model avoid point. Avoid 7-year maturities due to low attractiveness.
Replace Longs: Replace long positions that have reached their avoid trading level.
Portfolio Trading Hurdle: Maintain a 1:1 long-to-short ratio once the 67% long position hurdle is reached.
Current Status of trading indicators below:
Last week 1 short trade reached its avoid trading level and was replaced by 3 new secondary short indicators, while 2 new long trade indicators were added.
Systematic Credit Trading Strategy September 29, 2025
Closed Positions: Last week the trading model indicators closed on short trade.
Enter New Longs: Last week, 2 long new issue indicators were added to the long/short basket trade.
3. Enter New Short trades: Last week 3 trading model short trade indicators were added. 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 70% 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. Monday's Basket Trade long/ short ratio 61.9%
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 – September 26, 2025)
Total Trades: 168 (1% of total trades).
Performance Summary:
Long Indicators: 119/134 reached avoid-trading levels, tightening by -9.34 bp.
Short Indicators: 28/35 reached avoid-trading levels, widening by +5.5 bp.
Remaining Longs: 13 tightened by -.6 bp.
Remaining Shorts: 8 tightened by -12.7 bp.
Average Spread Movement: ±6.97 bp in the recommended direction.
Success Rate: 89% of indicators reached avoid-trading levels, which is slightly below normal.
Average trade holding period: (19.8 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.