Systematic Credit and Equity G-255 Trading Indicators for October 24, 2025
Good Morning! I sincerely apologize for the errors in the October 23, 2025 earnings digest published yesterday afternoon. We identified over a dozen critical inaccuracies, and I take full responsibility for the oversight. We re-ran the report overnight, incorporating updated data for Ford (F), Norfolk Southern (NSC), and Intel (INTC), which reported after Thursday's market close.
Wednesday October 22 aftermarket and Thursday October 23 G – 255 earnings reports
Key Takeaways from Yesterday's Earnings Reports:
While the equity markets are solely focused on "exceeding estimated adjusted earnings," the move in underlying equity price, where cash flow generation is not strong, languishes over time. Credit trading is a bit different; the shine from beating "equity analysts' expectations" normally lasts 3 trading days or less.
IBM (IBM), Crown Castle (CCI), Orange (ORAFP), Dow Chemical (DOW), Union Pacific (UNP), Norfolk Southern (NSC), American Airlines (AAL), Intel (INTC), PG&E (PCG), CenterPoint Energy (CNP), and Ford (F) all reported better pricing than unit or volume growth. Honeywell (HON) and T-Mobile (TMUS) reported actual unit or subscriber growth.
Intel (INTC) did receive $15 billion of needed current and future cash injection via asset sales and share sales, which is a short-term balance sheet fix. But even with $1.5 trillion of AI spending, INTC is barely profitable. Ford reported that they are near the "top end" of their performance level, post-record 3Q EV sales. However, 40% of F's sales come from outside the US, and both the ability to source US aluminum and tariff headwinds are going to be problems for the next several quarters. Despite the fact that balance sheet debt continues to grow and Ford Credit receivables are not, F credit spreads hit a 2025 (not a 52-week) tight on Thursday.
Trading Model Output:
Credit trading indicators are back to 25% above average for short trade indicators and 47% below average for long trade indicators on Wednesday. Flows into corporate credit vehicles were materially higher in the week ended October 22. The model credit trade indicator changes allocation as a result.
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 237 of the world's 255 largest issuers of corporate debt remains overvalued. The model's overall credit long/short indicators changed overnight.
Trading Model Indicators and Strategy for Friday:
After This week's US ETF and Mutual Fund flow data the stochastic model continues to identify long opportunities in deleveraging new supply and deleveraging new supply trading behind new issue spreads.
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:
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:
CPI MoM / YoY
S&P Global US Manufacturing PMI
New Home Sales
U. of Mich. Sentiment
Thursday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: -3 % below average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 78% of total TRACE volume.
High-Yield (HY) Trading
Volume: +2% above average.
G-255 Issuers: 11 of the top 25 traded bonds accounted for 54% of top 25 issuer volume and 60% 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 bought $800 million of high yield bonds on Thursday.
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 $1 bil of IG bonds on Thursday.
Most Bought Sector: BBB Healthcare
Cigna (CI Baa1/A- attractive long)
HCA (HCA Baa3/BBB- attractive short)
Most Sold Sector: Big 6 Banks
Morgan Stanley (MS A2/A- attractive short)
JP Morgan (JPM A1/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 149 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 ($153.8 billion) overvalued, with 53 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 ($92.4 billion) overvalued, with 53 short trade indicators
G-255 Issuer News
General Motors Co. and Stellantis NV will be forced to pay tariffs on some US-made vehicles they import for sale in Canada, after reducing assembly-line work at factories in Ontario as quotas of tariff-free vehicles are reduced.
General Motors (GM Baa2/BBB) reported 3Q results Tuesday, Stellantis (STLA Baa2/BBB) only reports results bi – annually. Both issuers have short credit and equity trading indicators.
U.S. IG Credit Valuation and Spreads
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 45.2% 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 54 of the world's 255 largest issuers of corporate debt record 137 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: -20.2 bp YoY and -56.1 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 third consecutive trading day on Thursday. As written on Wednesday, 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
No G-255 issuers sold new bonds in the US, UK, or Europe on Thursday.
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 that we have seen $22 billion of G-255 public debt retirement in October.
During the week ended Oct. 21, 2025:
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.
Dedicated Investment Grade Corp Inflow improved by +$150 million week-over-week.
Dedicated High Yield funds swung from outflow to +$516 million week-over-week.
US Mutual Fund Flows for the Week Ended Oct. 22, Compared to a Week Earlier, According to LSEG Lipper:
Short and intermediate investment-grade bonds: $3.72 billion inflow vs. $2.24 billion inflow
High-yield notes: $97.7 million outflow vs. $796.3 million outflow
Treasuries: $2.68 billion inflow vs. $3.66 billion inflow
US leveraged loans: $781.3 million outflow vs. $1.3 billion outflow
Mortgage-related: $262.7 million inflow vs. $163.3 million inflow
Systematic Trading Model Indicators and Strategy
Attractive Long Indicators: 58, -1 from Thursday and -46% below the 200 day moving average of all model long trade indicators.
Attractive Short indicators 628, +131 from Thursday and +25% above 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 23, 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. Thursday State Street (Aa3/A+) STT 5.784 10/23/36 reached it's 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. On Thursday ATT (Baa2/BBB) T 4.55 11/01/32 and Capital One (Baa1/A-) COF 5.197 09/11/36 (long indicators);
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.
Thursday's Basket Trade Long/Short Ratio: 64%
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 Thursday: Model adds ATT (Baa2/BBB) T 4.55 11/01/32 and Capital One (Baa1/A-) COF 5.197 09/11/36 (long indicators); State Street (Aa3/A) STT 4.784 10/23/36 Reached its avoid trading level on
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – October 23, 2025)
Performance Summary: Total Trades: 174 (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 +1.73 bp.
Remaining Shorts: 9 tightened by -10.02 bp.
Average Spread Movement: ±6.72 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.