Systematic Credit and Equity G-255 Trade Indicators for November 5, 2025
Good morning. We have received more responses to our "sea change" article than to anything we have written in 5 years. Yes, "times are changin'," thanks to Mark Zuckerberg and Facebook. Bond investors are slow to perceive that, in the 21st century of risk-taking, the global corporate bond is inferior both structurally and in risk/reward terms, owing to the capital markets comprehensively disproving what in modern market terms is known as the "Modigliani-Miller theorem." Data is data, and the value of the firm is equal to the market value of the debt + the market value of the equity. Where M&M got it wrong was, statistically speaking, that both the markets themselves and those clearing firms that provide margin to buy corporate bonds materially differentiate the level of margin they provide based on the level of indebtedness and credit rating of each issuer.
G-255 Record Borrowings and Record Returns to Shareholders in 2025
G – 255 record borrowings and record returns to shareholders in 2025
As a result, the capital markets themselves take a different view of companies that produce enormous levels of cash and keep more cash than debt on their balance sheets versus those corporate issuers who expand the amount of debt less cash on their balance sheets. Don't believe me? Ask Mr. Zuckerberg and his shareholders. One aspect of the sea change we want to elaborate on: I repeat, Meta's disclosure is some of the most transparent in the world. Nothing that is transpiring on the Meta balance sheet today is something that any financial analyst, trader, or portfolio manager should not have known was coming. The sea change? Meta isn't and won't be alone in its ability to issue corporate bonds to reward shareholders. We will see record borrowings and record share repurchases and dividend payments in 2025. As of this AM, 131 of the world's top 255 issuers of corporate debt have reported September results. A record 144 of those borrowers are adding net debt.
Big 6 Bank Systematic Credit Model Indicators for Bank level, Hold Co, Subordinated and AT1 Issues
As shown above, Big 6 banks are leading the parade of corporate bond sales to repatriate capital to shareholders: $260 billion of new bonds and commercial paper YoY.
Listed above are trading indicators for 437 Big 6 USD bonds for single-A-rated bank and senior Holdco, subordinated bank and Holdco, and AT1 perps. While 5 of the 6 US banks are adding financial leverage, the number of short trade indicators has fallen from well over 200 on September 22 (please see page 4) to 85 this morning.
Over the past 6 weeks, Big 6 bank corporate bond spreads have widened by +5 to +15 bp.
Returns to shareholders in this sector now represent over 80% of net income and are growing 5x faster than revenue.
Big 6 Banks Equity Indictors
Keeping in mind that only JPM has equity market capitalization greater than its debt market cap, the relative attractiveness of the Big 6 US bank bonds is not strong. The returns on these bonds as new supply becomes a necessity to maintain shareholder payout growth are just starting to impact credit spreads.
As noted previously (and we will show greater detail in separate sector overviews), the divergence directionally
in equity prices of the world's largest corporate borrowers and their corporate debt will widen as net balance sheet leverage grows.
Large Cap Corporate Debt Still Not Overly Attractive – Quantitative Trading Model Indicators Explained.
If you are looking for the "magic numbers" as to when the model says we are significantly undervalued, those are on page 6. When we get to 150 long trade indicators and 45% of all undervalued trading capital is at an extreme or has a long trade indicator, that is when the model says to get longer.
One other quantitative component to understand: credit spreads tighten 72% of all trading days. And that's a quantitative fact, not a guess. The number of systematic credit short trade indicators on average is 5x greater than the number of long trade indicators as a result.
We keep a section (page 5) devoted only to the correlation between US equity prices and USD credit spread movement. That correlation is the dominant variable in the top data hierarchy (there are 5 in the systematic trading model) for equities and corporate debt. More importantly, the correlation between the two risk markets is a quantitative given or fact.
Finally, we have been asked about how much wider credit spreads are for large-cap issuers (and the Big 6 have the second-largest average capital per bond of all USD sectors) relative to small-cap bonds. We don't track issuers with less than $14 billion of tradable debt market capital. Our trading universe (255 issuers, 6,000 USD bonds, 83% investment grade) is less than roughly +13 bp wider since we hit 1,100 short trade indicators on September 22. At the time, the model indicated a +5 to +10 bp widening over a two-week period. It took 5 weeks for spreads to widen to the projected level.
Post four days of credit spread widening, and material drops in equity prices of the world's most indebted companies, the systematic trading model indicators have turned slightly undervalued, with over 8 equities of the 244 issuers with $15 billion of tradable debt now down more than -10% in the past month. G – 255 equities are slightly attractive. G-255 corporate debt trades at its widest levels since May but is still modestly overvalued. Retail ETF corporate bond flows were flat WoW.
Top Short-Indicated Sector:
BBB Autos (All currencies)
Top 3 Long-Indicated Sectors:
US Regional Banks (USD)
UK Banks (all currencies)
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 Tuesday:
Weekly comparable store sales rose +5.7% YoY according Johnson Redbook.
There are 15,000 fewer retail outlets open in 2025 when compared to 2024
Credit Trading Tuesday
Investment-Grade (IG) Trading
Volume: +16 % above average with META, Oracle and Alphabet accounting for 10% of the volume
G-255 Issuers: 99 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 94% of total TRACE volume.
High-Yield (HY) Trading
Volume: 10% below average.
G-255 Issuers: 12 of the top 25 traded bonds accounted for 53% of top 25 issuer volume and 54% of total TRACE volume.
Tuesday Credit Market Movement
US CDX Index: wider +.6bp at 49.6 bp (includes -4 bp of forward roll)
US IG Cash Spreads: unchanged to (+2 bp) wider US financials underperformed.
CDX HY Index: -0.2 bp at 107 (per Bloomberg)
HY Cash Bonds were wider Tuesday, with BB Materials underperforming.
High-Yield Activity
• Dealers Sold $300mm of high yield bonds on Tuesday.
Most Bought HY Bonds: Charter Communications (CHTR Baa1/BB+ attractive short)
Most Sold HY Bonds: Tenet Healthcare (THC BA3/BB attractive short)
Investment Grade Activity
Dealers sold $ 1.5 billion of IG bonds on Tuesday.
Most Bought Sector: Single A TMT
Microsoft (Aaa Aaa/AAA attractive long)
Comcast (CMCSA A3/A- attractive long)
Most Sold Sector: Yankee Banks
UBS (UBS A2/A- attractive long)
Natwest Markets (NWG A3 /A- 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 216 undervalued bonds ($346 billion market value), with 73 long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,479 bonds ($2.3 trillion) are overvalued per the stochastic credit trading model, with 481 short trade indicators.
U.S. Big 6 Banks (all ratings):No longer a short indicator as of October 22. Bonds +5 to +15 bp since 9/22.
Single A and BB Energy: No longer a short indicator as of October 27. Bonds +6 to +18 bp since 9/22.
Single A Healthcare: No longer a short indicator as of October 22. Bonds +4 to +12 bp since 9/22.
Single A Industrials: No longer a short indicator as of October 22. Bonds +5 to +15 bp since 9/22.
BBB Autos: 75 bonds ($90.6 billion) are overvalued, with 53 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 22% 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 136 of the world's 255 largest issuers of corporate debt 144 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: -18.8bp YoY and -48,6bp YTD.
Bloomberg 10Y credit spreads are derived by taking the Moody's relevant index yield and subtracting the UST 10Y YTM
We saw the market attempt to digest $100 billion of new supply between Thursday and Tuesday. Much of the new supply trades outside of new-issue spreads.
Hence the curiosity of Standard Chartered (which has more cash than debt) and Entergy (which has just one Jr. Subordinated bond in circulation) coming to market when recent AA-rated deals can't get to new-issue price. Yet, that is exactly what transpired. Not surprisingly, the new G-255 issuer bonds had to be priced attractively according to our trading model.
Net inflows to ETFs totaled $8.23b in the week ended Nov. 4, 2025, including the effect of leveraged funds, compared with $10.3b the prior week
IShares iBoxx $ Investment Grade Corporate Bond ETF had the biggest inflow, of $1.28b
US Equity Correlation to Overall US Credit Spreads
US equities and credit markets correlated directionally for a 10th trading day in 16, and 2025 remains the second-lowest directional correlation year for USD credit and equities. 2011 was the lowest correlation, at just 70.7% of the overall trading days when equities and corporate bond spreads closed in the same direction. Equities and credit spreads have now failed to move in the same direction 28% of all 2025 trading days. The statistical average of directional correlation between the S&P 500 and US credit spreads is close to 80% over the past 33 years, with a range of 74% to 83%. Will the change in US credit market constituency versus equity market constituency impact the trading direction correlation? Statistically speaking, not a chance.
The Modigliani-Miller (MM) theory states that a company's value is determined by its earning power and asset risk, not its capital structure (the mix of debt and equity financing). In a world with no taxes, transaction costs, or bankruptcy costs, the theory suggests that a firm's value is independent of how it is financed.
And in truth, on a stand-alone basis, for every dollar borrowed, the value of a given firm does not increase by $1. The sum of the borrowing between debt and equity is less than 1. However, when the borrowed money is redeployed into share repurchases, the value of the firm rises by significantly more than $1 for each dollar borrowed.
In 2025, G-255 borrowers will come to market to sell well over $1.5 trillion in bonds globally. The stunning aspect of this record large-cap corporate borrowing stems from the fact that 70 percent of the bonds borrowed will fund either dividends or share repurchases. This is why there is a series of borrowers looking to replicate bond deals similar in size and tenor to the recent META and GOOGL deals.
Attractive Long Indicators: 73, +7 from Tuesday and -33% below the 200-day moving average of all model long trade indicators.
Attractive Long Market Cap accounts for: 28% of all undervalued Systematic Credit capital.
Attractive Short Indicators 483, +8 from Tuesday and -6% below the 200-day moving average of all model short trade indicators
Attractive Short Market Cap accounts for: 31% 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 short trade and two long trades reached their avoid trading level. The trading model added three long indicators.
Systematic Credit Trading Strategy – November 5, 2025:
Closed Positions: United Health (A2/A) UNH 3.05 05/15/41 short trading indicator reached its avoid trading level Friday. John Deere Cr. (A2/A) DE 5.45 01/16/35 short trading indicator reached its avoid trading level Monday. BP (A2/A-) BPLN 3.06 06/17/41 reached its avoid trading level Tuesday.
Enter New Longs: 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. The trading model added Meta (AA3/ AA-) META 4 7/8 11/15/35 and META 5 1/2 11/15/45 new supply long trade indicators on Friday.
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. The trading model added Cigna (Baa1/A-) CI 2.4 03/15/30 and HCA (Baa2/BBB-) HCA 3 5/8 03/15/32 as short trade indicators Monday.
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 to change overnight: Historic trading levels are leading to overnight adjustments to long, short and avoid indicator levels.
Tuesday's Basket Trade Long/Short Ratio: 69%
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 Tuesday: BP (A2/A-) BPLN 3.06 06/17/41 reached its avoid trading level.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – November 4, 2025)
Performance Summary: Total Trades: 184 (1% of total trades).
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.