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Wed, October 29, 2025

Systematic Credit and Equity G-255 Trading Indicators for October 29, 2025

Good morning! A few errors in Tuesday's reports regarding attractive levels—this time for G-255 equity indicators—have been corrected. Despite significantly lower-than-average corporate bond issuance in October, roughly $31 billion in G-255 corporate bond redemptions, and strong inflows in the past week, credit markets refused to match the upbeat rhythm that has become a daily routine with US equities. Tuesday's directional divergence between US equity and US debt markets was driven more by pent-up supply (roughly $35 billion in two days) and challenging pricing in the BBB space. Dealers ended up buying roughly $4 billion of IG and non-IG paper, and a couple of the larger, aggressively priced deals backed up. This is typically a catalyst for broader credit widening, and Tuesday was no exception.

Tuesday Night and Wednesday Earnings reports

We are attempting to publish all 246 expected earnings reports within a two-hour window this cycle, with a quick view of both the equity and corporate bond picture, along with the high-level individual G-255 equity and bond trade indicators. While nearly half the large-cap USD corporate bond market cap has already reported results, this is not the case for credit markets outside the US or for US equity

Of the 16 issuers that reported results in the past 27 hours, 2 balance sheets are now deleveraging and 3 are adding net debt.

The 3Q earnings story—though not yet complete—remains consistent across the first 68 large corporations: unit, volume, or "core" growth is weak in all sectors except certain healthcare providers and anything related to AI.

What is puzzling is that, on one side of the equity market, we see bets on lower US interest rates due to slowing inflation—while earnings reports show that rising product and service price inflation is the primary driver of earnings growth in our $35 trillion (debt + equity value of the G-255) trading universe.

New Supply:

Five more G-255 issuers that reported results came to market on Tuesday. Two of those issuers (Ford Motor (F) and American Airlines (AAL)) have not issued in roughly three years. Still, there was no discernible "scarcity demand" for either issue.

Trading Model Output:

Credit trading indicators returned to 74% above average for short trade indicators and 60% below average for long trade indicators on Tuesday. The model made additional sector indicator changes overnight.

Weekly US ETF Bond flow is due to be reported within the next hour. 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.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 Tuesday:

  • US consumer confidence fell in October for a third straight month on dimmer views about the outlook for the economy and labor market.

  • Same-store sales, rose 5.2% in the Oct. 25 according to Johnson Redbook

Investment-Grade (IG) Trading

  • Volume: -9.5 % below average.

  • G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 81% of total TRACE volume.

High-Yield (HY) Trading

  • Volume: -16% above average.

  • G-255 Issuers: 9 of the top 25 traded bonds accounted for 43% of top 25 issuer volume and 46% of total TRACE volume.

Tuesday Credit Market Movement

  • US CDX Index: +.5 bp at 46.4 bp (includes -4 bp of forward roll)

  • US IG Cash Spreads: (+1 to +3 bp) wider, with IG Utilities underperforming.

  • CDX HY Index: -0.1 bp at 107.7 (per Bloomberg)

  • HY Cash Bonds Slightly wider Tuesday, with non-IG Consumer companies the poorest performers.

High-Yield Activity

• Dealers bought $1.3 billion of high yield bonds on Tuesday.

  • Most Bought HY Bonds: Altice (SFRFP Caa1/CCC+)

  • Most Sold HY Bonds: Voltagrid (VOLTAG B3/B+)

Investment Grade Activity

  • Dealers bought $1.5 bil of IG bonds on Tuesday.

  • Most Bought Sector: Single A Energy

Exxon Mobil (XOM A1/A- attractive long)

ConocoPhillips (COP A2/A- attractive short)

  • Most Sold Sector: BBB Healthcare

HCA (HCA Baa2/BBB- attractive short)

CVS (CVS Baa3/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 140 undervalued bonds ($204.8 billion market value), with 52 long trade indicators across the 6,000-bond USD universe.

Short Opportunities

  • 1,384 bonds ($2.155 trillion) are overvalued per the stochastic credit trading model, with 880 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: 77 bonds ($93.1 billion) overvalued, with 67 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 39% 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 78 of the world's 255 largest issuers of corporate debt 137 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: -26.5 bp YoY and -58 bp YTD.

Bloomberg 10Y credit spreads are derived by taking the Moody's relevant index yield and subtracting the UST 10Y YTM

4 additional G – 255 corporates sold 9 new USD bonds on Tuesday totaling $7.4 bil and all of Tuesday's issuers with the exception of Ford Motor Company (F) have more debt than cash or were reducing balance sheet in the prior quarter.

Lloyds Banks (LLOYDS A3/A-) sold bonds for a second consecutive day tapping the USD market for $2.85 billion (after selling $1 bil of 10Y NC 5 PERP yesterday) offering $3nc 2 floating and fixed and 11n10 fixed. The most attractive bond offering of the day according to our trading model was the Royal Bank of Canada (RY A2/A) $6nc5 deal which the trading model indicator shows (-10bp) of credit spread tightening.

The Ford Motor Co offering was its first in 3 years.

G-255 Issuer News Tuesday

19 of the world's 255 largest issuers of corporate debt report their most recent operating results today.

US Equity Correlation to Overall US Credit Spreads

US equities and credit markets showed negative directional trading correlation for the first US trading day in six as US credit was wider on Tuesday due roughly $40 billion of new supply in just a two - day span. 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: 52, +11 from Tuesday and -47.5% below the 200-day moving average of all model long trade indicators.

  • Attractive Long Market Cap accounts for: 34% of all undervalued Systematic Credit Capital

  • Attractive Short Indicators 880, +3 from Tuesday and +74% above the 200-day moving average of all model short trade indicators

  • Attractive Short Market Cap accounts for: 62% 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 29, 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 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.

Tuesday's Basket Trade Long/Short Ratio: 66.7%

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: Lloyds Bank (A3/A-) LLOYDS Float 11/04/31 added by the trading model as a long trade indicator.

Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – October 28, 2025)

Performance Summary: Total Trades: 179 (1% of total trades).

  • Long Indicators: 124/141 reached avoid-trading levels, tightening by -9.27 bp.

  • Short Indicators: 29/38 reached avoid-trading levels, widening by +5.62 bp.

  • Remaining Longs: 16 tightened by -1.29 bp.

  • Remaining Shorts: 9 tightened by -13.41 bp.

  • Average Spread Movement: ±6.80 bp in the recommended 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.