Systematic Credit and Equity G-255 Trading Indicators for September 23, 2025
Good Morning! U.S. risk markets are unchanged overnight as many are out for the Jewish holiday. Monday's U.S. trading saw the S&P 500 reach another new high, while U.S. secondary credit weakened slightly. However, U.S. corporate bonds were robust on Monday, with 6 G-255 issuers selling nearly $15 billion in new bonds. Several issuers were both deleveraging and pricing new bonds favorably, given the historic levels of U.S. front-end credit spreads. We also saw a rare credit upgrade for Broadcom (AVGO) on deal announcement to Single A from both Moody's and S&P. Single A-rated G-255 TMT bonds are a rare species in new supply. Broadcom sold $5 billion, and bonds performed well despite the overall AVGO complex trading at 52-week tight levels.
The best-performing new supply came from BBB- Royal Caribbean (RCL), which sold $1.5 billion in bonds at -35 bp to new issue indication and then tightened another -8 bp in Monday night trading. RCL is reducing net debt more quickly than any other G-255 issuer.
Credit Market Model Indicator: Overvalued
Our credit trading model remains near all-time highs in terms of short trading indicators but is still approximately $70 billion in short market capital away from last November's $1.9 trillion. We have observed a slowing of capital into U.S. corporate bond ETFs and mutual funds, but no capital outflow as of September 17.
UST: Not yet overvalued
The UST 2Y hit a 52-week low yield over the weekend, still (-4bp) from a short trade indicator.
Weekly Federal Reserve Governors speech and recent Whitehouse actions
The Supreme Court case to remove Federal Reserve Governor Lisa Cook is gaining scrutiny outside the U.S., as is newly appointed Fed Governor Miran's justification of his dovish stance, arguing that Fed rates should be between 2% and 2.5%. Concerns revolve around Trump's influence on the Fed.
Combined with the U.S. Bureau of Labor Statistics' announcement that the annual release of consumer expenditure data—initially set for Tuesday—would be "rescheduled to a later date," and SEC Chair Atkins advocating an "optional" 6-month reporting mandate for U.S. corporates, multiple non-U.S. research opinions suggest that stimulus via significantly lower U.S. interest rates could stoke U.S. inflation.
Our take is slightly different. The least noticeable way to reduce USD exposure would be to sell U.S. Treasuries on "inflation concerns." It will take a couple of weeks to confirm if this is occurring.
Trading Model Indicators and Strategy for Tuesday
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-Monday 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 (all currencies)
Top 3 Long-Indicated Sectors:
US Regional Banks (USD)
US BBB/BB TMT (USD and EUR)
UK Banks (all currencies)
USD Systematic Trading Model
This morning's model indicators suggest US credit overvalued with the most likely trading scenario wider over the next 4 – 10 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 163 long/short trades in 2025 (marked via TRACE), 90% achieved ±5 bp targets, averaging ±7.23 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.
Monday's U.S. Credit Trading
Investment-Grade (IG) Trading
Volume: +15% above average.
G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 98% of top 100 issuer volume and 76% of total TRACE volume.
High-Yield (HY) Trading
Volume: 4% above average.
G-255 Issuers: 12 of the top 25 traded bonds accounted for 46% of top 25 issuer volume and 60% of total TRACE volume.
Monday Credit Market Movement
U.S. CDX Index: +0.25 bp at 47.55 bp.
U.S. IG Cash Spreads: were slightly wider, with Big 6 banks outperforming.
CDX HY Index: unchanged @ 107.9 (per Bloomberg).
HY Cash Bonds: Slightly lower with interest rates, spreads (-1bp) tighter.
High-Yield Activity
• Dealers bought $1.3 billion in HY bonds on Monday.
Most Bought HY Bonds: goeasy Ltd (Ba3/BB-)
Most Sold HY Bonds: Bombardier (BBDBCN B1/BB-)
Investment Grade Activity
Dealers bought $1.3 billion of IG bonds on Monday.
Most Bought Sector: Big 6 Banks
Citigroup (C A3/BBB+, attractive long)
JP Morgan (JPM A1/A attractive short)
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 ($159 billion), with 29
long trade indicators across the 6,000-bond USD universe.
Short Opportunities
1,596 bonds ($2.44 trillion) are overvalued per the stochastic credit trading model, with 1191 short trade indicators.
U.S. Big 6 Banks (All Ratings): 310 bonds ($776 billion) overvalued, with 230 short indicators.
Single A and BB Energy: 107 bonds ($170 billion) overvalued, with 72 short indicators.
Single A Healthcare: 118 bonds ($170.5 billion) overvalued, with 94 short indicators.
Single A Industrials: 109 bonds ($123.3 billion) overvalued, with 90 short indicators.
G-255 Issuer News
Heineken NV announced it will acquire Florida Ice and Farm Company's beverage and retail businesses in a $3.2 billion cash deal, including Costa Rica's Imperial beer, a soft drinks business with a PepsiCo bottling license, and more than 300 retail locations.
Heineken (HEIANA A3/BBB+) debt and HEIA NA equity both have short trade indicators.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 46% 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) is overvalued. 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 39 basis points (bp) YoY but down -43 bp YTD.
Global Equity Correlation to IG Credit Spreads
U.S. equities failed to correlate directionally with U.S. equity price movements for an eighth trading day out of nine. In 2025, USD 10-year credit and equity prices have correlated on 143 out of 192 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 Monday, six G-255 issuers came to market, selling 14 bonds totaling $14.95 billion, with over $30 billion expected this week. Two issues outperformed:
Broadcom (AVGO): Upgraded to A3/A- by Moody's today and S&P last Wednesday, sold a three-part $5 billion deal.
Royal Caribbean (RCL, Baa3/BBB-): The fastest deleveraging G-255 issuer, sold 7-year debt that tightened by -7 bp after guidance was tightened by -5 bp prior to launch.
AerCap Ireland (AER, Baa1/BBB+), another deleveraging issuer, sold $1.2 billion of 5- and 10-year bonds on Monday.
For September, 55 of the world's largest borrowers sold 127 bonds totaling $116.8 billion, with 63% from non-financial issuers. Year-to-date G-255 supply now stands at 293 new issues, comprising 706 individual bonds totaling $847.24 billion, with 52.3% from non-financial companies.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1190, +2 from Monday +106% above the 200 day moving average of all model short trading recommendations.
Attractive long indicators: 29, -13 from Monday.
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 23, 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: Today the trading model indicator for the new issue Broadcom AVGO 4.8 02/15/36 was added to the long/short basket trade.
3. Enter New Short trades: Today the trading model indicator adds the General Motors GM 5.45 09/06/34 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. Monday's Basket Trade long/ short ratio 64.7%
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: New Supply Broadcom (A3/A-) AVGO 4.8 02/15/36 has a trading model long indicator. General Motors Financial (Baa2/BBB) GM 5.45 09/06/34 has a trading model short indicator.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – September 22, 2025)
Total Trades: 163 (1% of total trades).
Performance Summary:
Long Indicators: 119/126 reached avoid-trading levels, tightening by -9.34 bp.
Short Indicators: 27/33 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 11 tightened -3.06 bp.
Remaining Shorts: 6 tightened by -19.14 bp.
Average Spread Movement: ±7.22 bp in the recommended direction.
Success Rate: 91% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (19.79 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.