G-250 USD New Issue Supply with Trade Indicators for May 15, 2025 and Trading Model Summary
The Calm After The Storm
Good Morning: First, yes, I realize the US PPI data will be reported today rather than yesterday. My apologies.
Second, we saw interesting comments and results from Sumitomo Mitsui (SUMIBK), Deutsche Telekom (DTE GY), Cisco (CSCO), and Simon Property Group (SPG). While the world's largest corporations are generally adding debt and net leverage, most large US banks are using cash and increasing net debt to pay shareholders, whereas non-US banks are also paying shareholders, but their balance sheet cash buffers are larger than those of large US banks.
Non-financials are generally adding debt to pay shareholders, but non-US issuers are borrowing less than half as much as US non-financial issuers.
The simple conclusion is that, while we have documented our systematic trading model's top attractive short trading indicators from November 12, 2024, to the model's top attractive long indicators day (April 10, 2025) and noted the +72 bp credit spread widening, the most recent results and capital flows suggest US IG credit is slightly overvalued. For US IG credit spreads to recover to the same magnitude as US equity prices, US fund flows, global capital flows, and US balance sheets would need to improve.
Inflation Readings and Interest Rate Calls
To repeat, US core CPI rose 0.2% from March and 2.8% from April of last year. The CPI report showed declines in airfares, used cars, and apparel, but increases in furniture and appliances, which are largely imported. Since it's already May 15, we can say with reasonable certainty that US used car prices, airfare, and apparel prices will not be lower YoY in the May CPI reading.
While the impact of tariffs on inflation is less certain, survey and expectations data (which all precede actual reported CPI data) suggest CPI prices are headed higher.
Based on our reading of the underlying inputs, today's PPI data may not be as tame as Tuesday's numbers.
Earnings Season
The below charts are a bit misleading:
Earnings season is 80% over. Overall liquidity remains strong with $8.6 trillion vs. $14.3 trillion of debt (but not deposits, which are also about $14 trillion).
US banks have added $150 billion of net debt to reposition their trading books and repurchase equity
Non-US banks, which account for more of the global financial capital structure than any other sector, have more cash than debt and added $160 billion of net liquidity thus far in 1Q 2025.
Global non-financials are showing a $24 billion increase in overall net debt. This includes Single A TMT balance sheets that added $7 billion of net liquidity in Q1 2025.
Clearly, however, away from the largest Yankee bank issuers, global balance sheets are adding net debt in 1Q 2025.
Wednesday's US IG Credit Trading:
USD trading volumes were just below above normal on Wednesday as lower volumes are becoming the norm. US broker dealers again we not asked to buy much as net flow between dealers and end users was flay. HSBC (HSBC) and Athene (ATH) were the most sold bond while we saw no material buying or selling of any other issuers Wednesday.
US CDX widened by +2bp to 56 and US IG cash was ostensibly unchanged US Fins were the best performing sector and overall healthcare was the only negative performing sector in terms of credit spread on Wednesday
Attractive trading sectors
Attractive Long Trading Sectors: None: This is how are trading model works. As attractive as de- levering IG credit issuer credit spreads were on April 10 of this year only BBB-rated TMT, BBB-rated Yankee Euro banks have 10 or more bonds that are considered attractive long indicators by our trading model.
Attractive Short Trading Sectors: US Big 6 banks, Single A TMT, BBB TMT, Single A Energy, BBB Energy, Single A Consumer and both Single A and BBB Healthcare all have at least 10 attractive short trading indicators at Tuesday's closing levels.
For more details on each trading sector or individual secondary trading curve, please reach out.
Issuer News Wednesday
UnitedHealth Group Inc. is under criminal investigation for possible Medicare fraud, according to the Wall Street Journal. The Justice Department has been probing the company's Medicare Advantage business since at least last summer, but the nature of the potential criminal allegations is unclear.
United Healthcare (UNH) equity fell another 1% Wednesday after falling 18% Tuesday on CEO replacement.
U.S. IG Credit Valuation
US investment-grade (IG) credit remains "Slightly overvalued" which is far cheaper than where US IG credit has traded over the past 2 years .
US credit spreads widened by +75 bp from November 12, 2024, when our trading model generated 1,121 attractive short trading indicators ($1.903 trillion) to April 10, 2025, when the model produced 828 attractive long indicators ($1.514 trillion). Since April 10, 2025, US spreads are roughly 25 bp tighter in both BBB and Single-A rated credit.
This is how systematic trading captures volatility trading points and produces significantly higher reward/risk results metrics in an automated analytic and trading process.
Global Equity Correlation to IG Credit Spreads
We have been noting that US 10Y credit spreads correlated with US equity price movement 86% of the trading days over the past 12 months. Wednesday did not see much change as healthcare spreads were wider with the United Healthcare (UNH) news as healthcare equities were lower.
New Supply / Bond Maturities / Credit Fund outflows for May
Wednesday saw 4 US G – 250 Deals (7 tranches) totaling $5.5 billion. The PSEG and the SWEDA offerings were attractively priced and traded well in the grey market.
This morning, we see:
New European Supply May 15, 2025:
Unicredit (UCGIM)
EUR Benchmark 5.5Y Covered Fixed (Nov. 22, 2030) MS+43
Credit Agricole SA (ACAFP, Baa1/BBB+)
GBP Benchmark Long 10NC5 Sub Fixed (Oct. 22, 2035) UKT+210 Area
NatWest Markets PLC (NWG, A1/A)
Min. CHF200m 5Y Fixed (May 30, 2030) SARON MS+90 Area
Barclays PLC (BACR, Ba1/BB-)
GBP Benchmark PerpNC7 Variable 8.75% Area
HSBC Holdings PLC (HSBC, A3/A-)
GBP Benchmark 8NC7 Fxd-to-FRN (May 22, 2033) UKT+160 Area
About €5.5 bil total from 5 G-250 issuers.
Since the beginning of earnings season (April 14, 2025), 20 G-250 issuers have sold 56 deals for €60.5 billion.
At the same time, US Big 6 banks have raised $41.35 billion in 9 separate USD transactions (21 separate bonds). 37 other G-250 issuers have raised $82.5 billion in 99 separate offerings.
We have also seen $22 billion of G -250 USD bond retirements this week bringing to 4 week total to $88 billion.
Systematic Trading Model Indicators – Wednesday
We have now seen over 200 of the world's largest 250 corporate bond issuer balance sheets for the period ended 3/31/25. While more issuers are adding net debt than at any time since COVID, the amount and sectors adding balance sheet debt are highly differentiated. This is leading to almost $4 trillion (over 3,800 bonds) that our credit trading model output identifies as potential attractive short trading indicators.
Systematic Trading Strategy for Thursday May 15
With 206 attractive short trading indicators representing 72.5% of all bonds trading at volatility levels the model considers extreme, the model indicates shifting the balance of long/short holdings away from "overweight long."
Long Positions: Attractive bonds (or new supply) from issuers that have already reported results. However, an issue size above $1 billion is the sole indicator for fixed coupon bonds. While the model added new Toyota Monday supply, 9 long indicators have since reached their avoid trading levels. Given Oracle (ORCL) results last night, we will publish one of the 4 ORCL long indicators.
Short Positions: Issuer bonds trading within 20% of their 52-week tight spread, where the underlying company is releveraging its balance sheet. Today, the model adds the most attractive short Big 5 trading indicators, a Goldman Sachs (GS) holdco bond.
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, we add the Cisco (A1/AA-) CSCO 5.1 02/24/35 as an attractive long indicator following last night's trading results.
The Toyota (A1/A+) TOYOTA 4 1/2 05/14/27, Apple (Aaa/AA+) AAPL 1.4 08/05/28, Roche (Aa2/AA) ROSW 5.338 11/13/28, and Bank of New York (Aa3/A) BK 4.942 02/11/31 all reached their avoid trading levels on Wednesday.
Yesterday, the model's top attractive short trading indicator was HCA (Baa3/BBB-) HCA 3 5/8 03/15/32 91/10Y. The model has indicated HCA as an attractive short trading indicator several times in the past 2 years. This morning, we publish the Goldman Sachs (A2/BBB+) GS 2.6 02/07/30 as the top attractive short trading indicator from our trading model (out of 206), as the GS subordinated structure is still (-4 to -10bp) from being an attractive short trading indicator.
Wednesday Sample Trading Indicator and Credit Spread Movement
Since the January 4, we've published 101 secondary and new-issue trading indicators from our model:
• 51 of 76 attractive long indicators have reached their avoid-trading level and tightened by (-9.1bp) on average
• 24 of 25 attractive short trading indicators have reached their avoid-trading level and widened by (+5.3 bp) on average.
• The remaining 25 long indicators credit spreads have widened by (+2.7bp) wider on average.
• Across all 101 indicators, credit spread movement has been +/- 4.91 bp in the direction of the those indicated.
Earnings reports from this morning, yesterday and last week
ABN Amro (ABN, Baa2/BBB SNP)
• ABN Amro (ABN) reported 1Q 2025 revenue decline of (-2.4%) YoY and net income that fell (-8.2%) owing to higher credit costs. However, credit quality, after charges in ABN's growing loan book, is improving. Deposits are growing, and the company is retaining capital.
• Financial Position: ABN Amro's net debt continues to grow as the company's deposit base is roughly the same as it was 3 years ago. CET1 capital rose slightly in the quarter to 14.7%.
• Model Trading Indicators: There are few USD-denominated ABN bonds to choose from. Only 11 securities have market capitalization greater than $500mm. At present, all of those bonds trade (+15bp) wide of an attractive short trading indicators. The model sees ABN Amro (ABN) as an attractive short indicators.
Sumitomo Mitsubishi Group (SUMIBK, Baa2/BBB SNP)
• Sumitomo (SMFG) reported 4Q 2025 net income of ¥42 billion after several adjustments. FY 2025 was a record year for SUMIBK. Management's focus on Wednesday was the repurchase of 1% of Sumi shares outstanding, with YE FY2026 net profit estimated at ¥1.3 trillion, based on changes to respond to US trade tariffs. Credit costs in the year ended March 2025 rose 30% YoY with several charge-offs during 4Q, which led to an improvement in the NPL ratio of (-14bp). Deposits, loans, AUM, and trading assets are all growing, but the bank is reducing its equity holdings.
• Financial Position: Sumitomo has significantly more cash than equity. That said, continued share repurchases at levels well above book value are leading to a fairly low CET1 capital ratio of 10.7%.
• Model Trading Indicators: There are 25 USD-denominated secondary SUMI bonds with market capitalization of $1 billion or greater. However, only those bonds issued during the Covid period with below-market coupons are considered undervalued by the trading model. The SUMIBK 5.632 01/15/35 is the longest-dated senior bond in the entire secondary SUMFG trading structure. Our trading model indicates waiting for new Sumi supply as the best entry point for credit exposure to Sumitomo Group. The trading model sees 8316 JT as attractive at last night's closing level.
Cisco Systems (CSCO A1/ A+)
• Cisco Systems reported 3Q operating earnings that rose 9% to 96 cents on an adjusted basis, driven by their acquisition of Splunk. The company also raised revenue guidance for 4Q and YE revenue guidance by $500mm to $56.5 billion. The company announced the retirement of their CFO.
• Financial Position: Cisco's business is not capital-intensive and generates enormous levels of cash. Over the first 9 months of FY2025, the company has generated $10 billion of cash, spent nearly as much on share repurchases and dividends, and slightly deleveraged its balance sheet at the same time.
• Model Trading Indicators: 4 of the 17 USD liquid CSCO secondary bonds are considered attractive long indicators by our credit trading model, with the CSCO 5.1 02/24/35 the most attractive. The model does not see CSCO equity as attractive at present trading levels.
Deutsche Telekom (DTE, Baa1/BBB+)
• Deutsche Telekom reported the strongest operating result in the company's first quarter. Every aspect of the company's recent investments in towers, US cellular communications, and European operations recorded a double-digit increase in operating earnings and cash flow, which rose 12% to €11.2 billion. The company raised the dividend and 2025 guidance.
• Financial Position: Despite over €103 billion of total debt and numerous borrowings over the past 5 years to invest in operations, cash flow growth was so strong that the company's balance sheet deleveraged by 4% in 1Q 2025.
• Model Trading Indicators: There are a total of 6 USD secondary DT bonds. None are attractive longs at current levels. The trading model sees DTE GY equity as attractive at last night's closing price.
Simon Property Group (SPG, Baa2/BBB)
• Simon Property reported flat revenue and declining funds from operations in their first quarter as revenue per square foot was flat YoY. The company reported a slight increase in occupancy and forecasted operating cash flow improvement overTweaking for the remainder of 2025.
• Financial Position: Net debt at SPG grows as the company expands its minority equity investments. No new property mortgage investments were made in 1Q 2025.
• Model Trading Indicators: SPG has 25 USD-denominated secondary bonds, but only 4 have market capitalization above $1 billion. The trading model sees the SPG 4 3/4 09/26/34, SPG 2.45 09/13/29, and SPG 3 1/4 09/13/49 as overvalued but (-13bp) or more from becoming an attractive short trading indicators. The trading model does not see SPG equity as an attractive short as of last night's closing price.
Abbvie (ABBV, A-/A3)
• ABBV filed their 10-Q, and operating earnings and cash flow reached their highest levels in 7 quarters. However, Abbvie's profitability continues to trail 2022–23 levels by 30%.
• Financial Position: Abbvie's total debt remains roughly flat YoY, but net debt is materially higher QoQ and YoY as the company continues to use cash to repurchase stock and pay dividends.
• Model Trading Indicators: ABBV has 36 liquid USD secondary bonds; however, our trading model sees 11 of them as overvalued and (-10bp) from becoming attractive short indicators. The trading model sees ABBV equity as an attractive long indicator at last night's closing price.
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.