Systematic Credit and Equity G-255 Trading Indicators for September 24, 2025
Good Morning! Good Morning! Risk indicators weakened overnight following Chair Fed Powell's remarks (one of 16 Fed Governor speeches this week) that there is "no riskless path" regarding elevated inflation and a slowing U.S. economy. U.S. risk markets are unchanged overnight as many are out for the Jewish holiday. Tuesday's U.S. trading saw the S&P 500 retreat due to additional U.S. political headlines. The trading model does not react to headlines about Jimmy Kimmel, NATO, or White House cautions about Tylenol. Instead, it uses market reactions to headlines to create trading indicators.
Credit Market Model Indicator: Priced to perfection
As of this morning's individual bond (19 attractive long) indicators, the credit model no longer sees new supply as attractive. The explanation for this is provided on page 4 in the new supply section. As of this morning, trading model indicators still view G-255 equities as overvalued and have not provided an overall credit indicator of "short only." We note that last Friday, the trading model's credit indicator was initially +5 to 10 bp wider over the next 5-10 trading days. Our calculations show spreads are +1.6 bp wider since last Friday.
Most Attractive Short Trading Sector: Single A Rated Healthcare
With 8 of the 17 largest Single A-rated healthcare/pharma issuers in the world adding net debt primarily to reward shareholders, the sector is the "strongest short" in our 6,000-bond trading universe, with 99 bond indicators showing greater value in spread widening than tightening. We maintain credit curves for each of the 17 issuers and all 336 bonds for Substack subscribers.
UST: Not yet overvalued
Yields remain higher across the UST curve (despite 100 bp of U.S. Federal Reserve overnight rates) year over year. Hence, our trading model still does not see USTs as overvalued.
US Financial Issuers
While U.S. banks are considered the most overvalued sector in our trading universe, the majority of U.S. banks report results in less than 30 calendar days. Given that balance sheet disposition can change significantly depending on securities holdings, the systematic trading model avoids adding risk to issuer positions within 30 days of earnings reports.
We will receive U.S. Corporate ETF flow information for the week ended September 23 later this morning and U.S. corporate mutual fund flows tomorrow. This information may change the model's long/short indicator for overall credit, investment grade, and high yield.
Trading Model Indicators and Strategy for Wednesday
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-Tuesday trading, 7-year credit remains the most attractive maturity sector; however, the trading model holds off on any long commitments until after U.S. ETF corporate flows are reported.
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 (all currencies)
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
This morning's model indicators suggest U.S. credit is overvalued, with the most likely trading scenario being wider spreads over the next 3–8 trading days.
Trading Allocation Strategy
47% Long: Undervalued, deleveraging bonds.
33% Short: Overvalued bonds in re-leveraging sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 165 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.13 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.
Tuesday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +12% above average.
G-255 Issuers: 96 of the top 100 traded issuer bonds accounted for 95% of top 100 issuer volume and 72% of total TRACE volume.
High-Yield (HY) Trading
Volume: 13% above average.
G-255 Issuers: 12 of the top 25 traded bonds accounted for 44% of top 25 issuer volume and 55% of total TRACE volume.
Tuesday Credit Market Movement
U.S. CDX Index: +0.20 bp at 47.75 bp.
U.S. IG Cash Spreads: (+2bp) wider with Utilities and Financial Perps underperforming.
CDX HY Index: Unchanged @ 107.9 (per Bloomberg).
HY Cash Bonds: Lower with BB healthcare underperforming.
High-Yield Activity
• Dealers bought $1.3 billion in HY bonds on Tuesday.
Most Bought HY Bonds: Cleveland Cliffs (Ba3/BB-)
Most Sold HY Bonds: Weatherford International (WFRD Ba3/BB)
Investment Grade Activity
Dealers bought $800 million of IG bonds on Tuesday.
Most Bought Sector: Consumer
BAT Capital (BATSLN Baa1/BBB+, attractive short)
Philip Morris (PM A3/A- attractive long)
Most Sold Sector: BBB TMT
Broadcom (AVGO Baa2/BBB attractive long)
Dell International (DELL Baa2/BBB 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 106 undervalued bonds ($99 billion), with 19
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,588 bonds ($2.42 trillion) are overvalued per the stochastic credit trading model, with 1177 short trade indicators.
U.S. Big 6 Banks (All Ratings): 310 bonds ($776 billion) overvalued, with 234 short indicators.
Single A and BB Energy: 106 bonds ($161.5 billion) overvalued, with 74 short indicators.
Single A Healthcare: 119 bonds ($172 billion) overvalued, with 99 short indicators.
Single A Industrials: 114 bonds ($127.7 billion) overvalued, with 91 short indicators.
G-255 Issuer News
Alibaba Group Holding Ltd.'s (BABA) shares surged to their highest in nearly four years after revealing plans to ramp up AI spending beyond an original $50 billion-plus. Chief Executive Officer Eddie Wu anticipates overall investment in artificial intelligence accelerating to approximately $4 trillion worldwide over the next five years.
Alibaba (BABA A1/A+) corporate bonds and equity are both carry long indicators at lower levels
President Donald Trump's warning about Tylenol use during pregnancy and its potential link to autism in children may reinvigorate litigation against Kenvue Inc. The U.S. Food and Drug Administration has initiated a label change for products containing acetaminophen to include a warning about a higher risk of autism in children when taken by pregnant women. This new warning could be used as evidence in court by consumers suing Kenvue and may damage the Tylenol brand, reducing consumption.
Kenvue (KVUE A1/A) debt has an attractive long indicator.
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 unchanged compared to last year.
Year-to-Date (YTD): Spreads are wider YTD.
UST 10-Year Rates: Up 37 basis points (bp) YoY but down -47 bp YTD.
Global Equity Correlation to IG Credit Spreads
U.S. equities correlated directionally with U.S. equity price movements for the eighth trading day in the last ten. We are now in a quiet period for earnings reports, and U.S. equities are at all-time highs. U.S. corporate debt valuations outside of 7 years are not near all-time tights. In 2025, USD 10-year credit and equity prices have correlated on 144 out of 193 trading days, well below the historical norm over the past 33 years. While there is an 80% historical correlation between U.S. equity prices and 10-year U.S. corporate credit spreads, recent geopolitical headlines and U.S. currency fluctuations have led to a decoupling of these two risk markets.
New USD G-255 supply and fund flow data
On Tuesday, four G-255 issuers came to market, selling 13 bonds totaling $12.5 billion, with the $30 billion expected weekly supply already reached by USD syndicates on Tuesday.
• Lowes (LOW Baa1 /BBB+) Holdco rating, sold a 5 -part $5 billion deal. This is acquisition finance (FBM) which historically, is the best performing new supply type. While the bonds came at a discount to secondary trading levels and in line with where our trading model would price them, the issue was sold with a roughly 5bp discount to 52 week tight spreads.
• Enel (ENELIM Baa1 /BBB) Holdco rating: Sold 4 bonds in a $5 billion transaction that similar to the LOW deal, comes roughly 5 bp cheap to 52 week tight spreads. Enel is one of three global electric utilities de-levering.
For September, 59 of the world's largest borrowers sold 140 bonds totaling $129.25 billion, with 66% from non-financial issuers. Year-to-date G-255 supply now stands at 297 new issues, comprising 719 individual bonds totaling $859.74 billion, with 52.9% from non-financial companies. New G-255 USD supply in 2025 is now just -2% below 2024 levels.
Nissan (NSANY BA2/BB) filed USD new supply overnight.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1177, -13 from Tuesday +105% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 19, -10 from Tuesday.
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 4 long trades reached their avoid trading level and was replaced by 3 new issue trade indicators.
Systematic Credit Trading Strategy September 24, 2025
Closed Positions: In the week ended September 19, our trading model indicators had 4 bonds that reached their avoid trading levels.
Enter New Longs: On Monday the trading model indicator for new issue Broadcom AVGO 4.8 02/15/36 and on Tuesday new issue Lowe's (Baa1/BBB+) LOW 4 ½ 10/13/32 indicators were added to the long/short basket trade.
3. Enter New Short trades: On Monday the trading model indicator added the General Motors GM 5.45 09/06/34 and on Tuesday United Healthcare (Baa2/BBB) UNH 3.05 05/15/41 was added to the long/short model basket trade. The trading model indicators show adding short trades 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. Tuesday's Basket Trade long/ short ratio 63.2%
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: Lowe's (Baa1/BBB+) LOW 4 ½ 10/13/32 has a trading model long indicator. United Healthcare (Baa2/BBB) UNH 3.05 05/15/41 has a trading model short indicator.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 23, 2025)
Total Trades: 165 (1% of total trades).
Performance Summary:
Long Indicators: 119/131 reached avoid-trading levels, tightening by -9.34 bp.
Short Indicators: 27/34 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 12 tightened -1.35 bp.
Remaining Shorts: 7 tightened by -16.38 bp.
Average Spread Movement: ±7.05 bp in the recommended direction.
Success Rate: 91% of indicators reached avoid-trading levels, which is 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.