Systematic Credit and Equity G-250 Trading Indicators for May 9, 2025
Still "Long Only"
Good Morning: Rather than re-hashing the same tariff / trade deal discussion recent earnings from issuers such as Toyota (TOYOTA), BMW (BMW) ConocoPhillips (COP), Occidental Petroleum (OXY), BPCE Group and several Nordic banks the number of global corporate debt issuers with $15 billion of tradable corporate debt is showing less balance sheet leverage over the past week (175 of these companies have disclosed earnings and balance sheet) then what we observed a week ago.
This is leading to more attractive long market cap in our $6 trillion USD trading/research selection set. With credit IG spreads still (+30bp) wider on the year, the number of re-levering balance sheets while still at a 6 quarter high, is not leading to a significant number of attractive short trading Indicators from our trading model.
So still ok go long corporate credit according to our trading model? A: Yes with more confidence than what showed a week ago. There are currently 755 issues from our 6,200 bond universe that are considered undervalued by our trading model with a market cap of almost $ 1 trillion. There are 502 overvalued bonds where the underlying issuer is adding net debt. But only 65 of those bonds (20 of them recent new issues) trading within 20% of their 52 week tight spread.
USD corporate credit remains attractive quantitatively speaking.
Earnings Season
Thus far, 177 of the 250 largest issuers of corporate debt have reported results for the period ended 3/31/25. 22 issuers will not report March results as they only report balance sheets for June and December.
We still will hear results from more global automakers, large banks, US retailers, energy companies, and some utilities. So the summary below may change before mid-June.
164 of the 177 issuers' data has been written up (we don't add the reported data to our model unless we have published the result first). The integrity of the output is paramount. We have only published revenue growth and shareholder payouts of non-financial issuers thus far, owing to the lack of disclosure of cash flow in many bank earnings announcements. We will begin to publish financial issuer dividend and revenue data next week.
For the issuers we have balance sheet data on, we see $12.5 trillion of debt, with net debt (total debt less cash and ST investments) $50 billion higher than in 4Q 2024 and $800+ billion higher YoY. Payouts to shareholders are driving global balance sheet disposition.
Non – financial net debt is growing growing .80% QoQ and 2.27% YoY.
At the same time, global non-financial issuers are paying out capital to shareholders at a rate 4x faster than their year-over-year revenue growth.
Thursday's US IG Credit Trading:
USD trading volumes were slightly above average Thursday, with dealers buying another $1.8 billion in USD bonds. Oneok (OKE), Oracle (ORCL), and Energy Transfer (ET) were the only top 15 issuers that haven't sold new bonds in the past 60 days. Energy outperformed, and no sector had a negative return on Thursday. CDX tightened (-2.0bp) to 61.5, while cash bonds were close to (-4bp) tighter in aggregate.
Attractive trading sectors
Attractive Long Trading Sectors: All TMT, UK banks, French and UK banks are the most attractive long trading sectors this morning within the 6,200 USD bond universe analyzed daily by our model. A couple of changes this AM
Non - US banks (24 with $4.89 trillion of total debt) have reduced net debt by (-$88.1 billion) QoQ and increased net debt by $306 billion YOY. UK banks as a sector have no net debt.
Attractive Short Trading Sectors: None. The consumer sector is releveraging. Consumer credit spreads are (+10bp) wide of attractive short trading levels. Single A Industrials are (+10bp) wide of their attractive short trading levels. US Big 6 banks are also attractive short trading Indicators (-4 to -7bp) tighter from current trading levels, while Single A rated Healthcare needs (-8 to -14bp) of credit spread tightening to create attractive short trading Indicators.
US banks (20 with $2.73 trillion of total debt) have added $125 billion of net debt QoQ and $420 billion of net debt YoY
For more details on each trading sector or individual secondary trading curve plea se reach out.
Issuer News Thursday
Nissan Motor Co. (NSANY) abandoned plans to build a battery plant in Fukuoka, Japan, to focus on improving its balance sheet.
IAG SA has announced its largest orders in recent years for widebody jets, including 32 Boeing (BA) 787-10 aircraft and 21 Airbus (AIRFP) A330neo planes, with a total investment of $10 billion.
Inflation Readings and Government Bonds
US unit labor costs jumped 5.7% in Q1 according the Bureau of labor statistics as output and productivity dropped.
NY Federal Reserve Bank 1 year inflation expectations rose to 3.63% in April from 3.58% in March. That's the highest reading for that indicator since September 2023.
US 10Y Treasury yields remain (-20bp) lower year to date and -13bp lower over the past 90 days.
U.S. IG Credit Valuation
US investment-grade (IG) credit inched back towards the line of "most attractive" and "attractive" for long credit Indicators. This is the 37th consecutive trading day of the "long only" output. See details in the Model output section below.
The model also indicates that we would need (-4 to -8bp) of additional index credit spread tightening prior to the "Long Only" output changing.
Global Equity Correlation to IG Credit Spreads
US 10Y credit spreads correlated with US S&P 500 closing prices for the 9th trading day in 10 on Thursday. The strongest correlation on Thursday was in US Big 6 banks.
New Supply / Bond Maturities / Credit Fund outflows for May
We saw one G -250 USD issue on Thursday in both the US and Europe. HSBC sold $4.25 billion of Global USD 6nc5 and 11nc10 fixed and $1.25 billion of Euro Dollar 6nc5 FRN.
The Euro Dollar FRN is large by any market standard. All three deals we priced attractively.
Short and intermediate investment-grade bonds: saw $117.8m outflow for the week ended May 7 vs. $1.53b outflow for the week ended May 1 according to Lipper.
High-yield notes saw: $1.62b inflow this week vs. $2.56b inflow last week
US leveraged loans: were $58.9m of inflow vs. $74.8m inflow
Systematic Trading Model Indicators – Thursday
The model maintains its "long-only" stance across its 6,200-bond, 250-issuer USD large-cap universe for the 37th consecutive trading day. Attractive short Indicators remain near five-year lows, with over 70% of model Indicators classified as attractive long.
Systematic Trading Strategy for Friday May 9
Long Positions: Attractive bonds (or new supply) from issuers that have already reported results. However, issue size of above $1 billion is the sole Indicator for fixed coupon bonds.
Short Positions: Issuer bonds trading within 20% of their 52-week tight spread, where the underlying company is releveraging its balance sheet. There aren't many of those at present trading levels.
Systematic Credit Indicators
Systematic credit trading employs defined back-tested trading processes and portfolio construction algorithms based on issuer reported and market trading parameters. This clarity differentiates them from discretionary approaches, offering replicable and auditable methods. We target ±5 basis points of credit spread movement in minimal trading days, balancing return maximization with volatility risk.
Most Recent Model Trading Indicators
This morning the model adds both HSBC (HSBC,A3/A-) new USD HSBC 5.24 05/13/31 and the HSBC 5.79 05/13/36 as UK banks are the most attractive long trading sector. at present .
The ATT (T) T 4.1 02/15/28 long trade Indicators reached its avoid trading level on Thursday.
Thursday Sample Trading Indicators and Credit Spread Movement
Since February 24, we've published 40 secondary and new-issue trading Indicators from our model:
• 17 Indicators have reached their avoid-trading level and tightened by (-10.1bp) on average
• The remaining 23 Indicators have widened by an average of +1 bp.
• Across all 40 Indicators, credit spreads are (-4.96bp) tighter.
Prior Long/Short Trading Indicators
Of the 46 new-issue and secondary trading Indicators published (22 long and 24 short) that reached their avoid trading level, the average credit spread movement was (+/-5.6bp).
Of the 10 long Indicators issued before February 22 that haven't yet hit the avoid-trading threshold:
• Four are BBB-rated and have widened by +26 bp on average since being indicated.
• They currently trade at 151 bp over the UST curve, with an 8.2-year duration.
• Our model projects an average spread tightening of -32 bp remaining.
• Six are single-A rated and have widened by +18.5 bp since being indicated.
• They now trade at 110.8 bp over the UST curve, with a 10.7-year duration.
• The trading model indicates an average spread tightening of -23.1 bp remains.
Earnings reports from Thursday
Toyota MTR (TOYOTA, A1/A+)
• Toyota reported an 11% increase in 4Q revenue and a 21% decline in pre-tax profit due to a small operating loss in the US. At the same time, the company raised its 1Q dividend by 10%. Toyota created a base forecast for 2026 that is (-35%) but expects units sold to grow slightly. It was a mostly bullish forecast.
• Financial Position: Despite the slowdown in unit sales and dividend increase, Toyota's balance sheet deleveraged in 4Q 2025.
• Model Trading Indicators: Our trading model identifies 9 of the 52 liquid Toyota secondary bonds as attractive, with the TOYOTA 5.55 11/20/30 the most attractive long Indicator. The model does not view 7203 JT equity as attractive at last night's closing price.
Viatris (VTRS, Baa3/BB+)
• Viatris' 1Q U.S. GAAP net loss was $(3.0) billion compared to U.S. GAAP net earnings of $114 million YoY. The negative earnings resulted from a non-cash goodwill impairment charge of $2.9 billion. 1Q adjusted EBITDA was $923 million, down 23% on a reported basis and down 12% on a divestiture-adjusted operational basis compared to 1Q 2024.
• Financial Position: The VTRS balance sheet continues to improve, with net debt down (-$3.5 billion) YoY.
• Model Trading Indicators: Several secondary Viatris USD bonds are viewed as attractive by our trading model, with significantly attractive long indicators. The VTRS 4 06/22/50 is considered the most attractive. The trading model does not view VTRS equity as attractive at last night's closing price.
Warner Bros/Discovery (WBD, Baa3/BBB-)
• Warner Bros. Discovery (WBD) reported operating cash flow roughly flat YoY at $553 million for the quarter. Total revenues fell 9% due to lower distribution, advertising, and entertainment revenue. The bright spot was Warner Bros. Discovery adding 5.3 million streaming subscribers during the quarter, bringing the global total to 122.3 million. Segment revenue rose 8%. Warner Bros. Discovery (WBD) equity rose as much as 7.4% after CNBC's David Faber reported WBD would "almost definitely" split off its linear cable networks.
• Financial Position: Warner Bros. Discovery (WBD) is paying down debt rapidly, with net debt now at $33 billion (-$6 billion) YoY post asset sales.
• Model Trading Indicators: Warner Bros. Discovery (WBD) secondary bonds now trade +300bp to USTs and are over (+100bp) wide to their 52-week tight spreads. Our trading model identifies 9 of the 12 liquid WBD USD secondary bonds as attractive. The model sees the WBD 5.05 03/15/42 as the most attractive of the 9. The trading model views Warner Bros. Discovery (WBD) equity as unattractive at last night's closing price.
Paramount Global (PARA, Baa3/BB+)
• Paramount Global's 1Q revenue decreased 6%, including an 8% hit from CBS's broadcast of Super Bowl LVIII in 1Q 2024. Total company advertising revenue decreased 19%, reflecting a 19-percentage-point impact from CBS's Super Bowl broadcast. Operating cash flow fell 30% to $688 million.
• Financial Position: PARA net debt is flat QoQ and YoY at $13.8 billion.
• Model Trading Indicators: With no balance sheet direction, our credit trading model avoids the PARA secondary trading curve. The trading model views PARA equity as unattractive.
ConocoPhillips (COP, A2/A- SNP)
• Reported 1Q revenue rose 18% post the closing of the Marathon Oil acquisition. Cash flow rose by 15%. Production grew 25% YoY as the company cautioned about the current pricing environment.
• Financial Position: COP distributed $2.5 billion to shareholders, including $1.5 billion through share repurchases and $1.0 billion through the ordinary dividend. COP also retired $0.5 billion of debt at maturity and ended the quarter with cash and short-term investments of $7.5 billion and long-term investments of $1.0 billion.
• Model Trading Indicators: Our trading model identifies 9 of the 25 liquid USD COP secondary bonds as undervalued, with the COP 6 1/2 02/01/39 considered the most attractive long Indicator. The model also views COP equity as attractive at last night's closing price.
Groupe BPCE (BPCEGP, Baa1/A SNP)
• BPCE reported 1Q revenues of €6.3 billion, +10%. Underlying C/I ratio at 68.2%, -3.3pp YoY. Gross operating income at €1.9 billion, +21%. Cost of risk at 26bps for stage 3 in Q1-25, slightly higher YoY. Net income €910 million, +4%.
• Financial Position: BPCE has a 16.2% CET1 capital ratio and has reduced net debt by (-€5 billion) in the past 90 days. Being state-owned offers the luxury of not paying dividends to equity holders. However, the corporate structure of BPCE is in constant flux due to acquisitions and divestitures of smaller banking entities.
• Model Trading Indicators: BPCE has sold debt in the USD market twice per year since 2020 and issued bonds in January of this year. The larger question is whether BPCE returns to the US market again this year given "trade talks." The trading model identifies 10 of the 22 liquid BPCEGP USD-denominated secondary bonds as undervalued, with the BPCEGP 6.293 01/14/36 the most attractive.
Sempra Energy (SRE, Baa2/BBB)
• Sempra reported modest 1Q revenue growth of 4% and similar operating cash flow. Results exceeded expectations, and the company affirmed 2025 guidance, which has a wide peak-to-trough range due to tariffs on equipment purchases.
• Financial Position: Like larger utility companies, SRE is not using its balance sheet to return capital to shareholders but is still releveraging given capex and expansion of its many business platforms.
• Model Trading Indicators: To generate a short trading indicator for SRE, it would need to come from the holdco level. While SRE has 12 liquid secondary holdco bonds in circulation, none are within (-11bp) of levels where our trading model would create an attractive short trading indicator. The trading model views SRE equity as attractive at last night's closing price.
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