Systematic Credit and Equity G-255 Trading Indicators for April 22, 2025
Systematic Credit Trading summary and recommendations April 22.
Good morning. The capital outflow we initially considered the "worst-case scenario" for U.S. risk markets under tariff policies is now materializing. This outflow stems less from inconsistent tariff communication and more from the Trump administration's attacks on the U.S. Constitution and immigration policies. Internationally, the White House's actions are perceived as more destabilizing than Brexit, which took four years to unravel the UK economy and capital markets.
Consequently, the U.S. is seen as less stable than other established capital markets—a perception not seen since 2008. It took over a decade to restore global confidence in U.S. investments from 2008. Continued capital outflows from U.S. markets will likely depress Price/Earnings ratios for U.S. equities, increase risk premiums for U.S. Treasuries, and widen U.S. credit spreads to offset the perceived risks emanating from Washington, D.C.
Where will this outflow end? Without careful policy adjustments in Washington, outflow may persist. Having spent more time abroad than in the U.S., the current international sentiment toward our President—not the U.S. as a nation—is more negative than at any point in my lifetime.
Monday's US IG Credit Trading
With no major corporate earnings reported and most European markets closed for Easter Monday, the IG CDX spread widened by 4 basis points to 74.0, while cash bonds increased by 6.1 bp. US Financials outperformed, with Single A TMT and Energy sectors weaker.
US trading volumes were 40% below average due to the European closure, with no net end user IG selling. The top 10 traded issuers were all financials, including a new American Express (AXP) supply.
United Healthcare (UNH) saw a delayed reaction to its Q1 results, with UNH 5.15 07/15/34 widening by 7 bp Monday and 9 bp week-on-week. The new JP Morgan JPM 5.103 04/22/31 issue was 1 bp wider on Monday and remains (-5bp) inside new issue spread.
Systematic Trading and outflows/earnings reports/current headline risk
The 27 basis point widening of US IG credit spreads since February 22 stems from: -Domestic and international credit fund outflows ($30 billion) -US equity index declines (-14.2%) -Rising leverage on large global corporate balance sheets -Excess new supply in March outpacing demand
Headline risks, including potential US trade tariffs and White House efforts to influence the Federal Reserve and US State Department, have driven much of this volatility.
For trading current market conditions, our model favors US regional bank bonds over Big 6 bank bonds, pending earnings results from over 90% of the world's largest corporate bond issuers. The new American Express (AXP) supply (FRN and 11nc10) stands out as the most attractive among 6,200 USD-denominated bonds in our 250-issuer ($11 trillion market cap) systematic trading universe.
As to how to trade the current volatility?
Right now our trading model sees US regional banks as more attractive than Big 6 bank bonds as we await earnings from over 90% of the world's largest corporate bond issuers
As of this AM, the new American Express (AXP) supply (FRN and 11nc10) are the most attractive of the 6200 $ denominated bonds in our 250 issuer ($11 trillion in market cap) systematic trading universe.
Forecasts of lower GDP and corporate earnings due to potential tariffs complicate predicting the end of outflows. However, upcoming earnings and forecasts from major issuers will guide optimal long and short systematic trading selections.
Issuer news on Monday
Macquarie Asset Management (MQGAU) agreed to sell its North American and European public investments business to Nomura Inc. for A$2.8 billion ($1.8 billion) as part of its increased focus on private markets.
The business comprises equities, fixed income and multi-asset strategies, with approximately A$285 billion of assets under management.
Red Tree Investments LLC has been approved as the opening bidder for Citgo Petroleum Corp.'s parent company with a starting offer of about $3.7 billion. The goal of the auction is to help pay back a long list of creditors, including Crystallex International Corp., Exxon Mobil (XOM), ConocoPhillips Co. (COP), and Siemens AG (SIEGR),whom the Venezuelan government and its state-owned oil company owe around $20 billion.
Inflation Readings and Government Bonds
Gold hit a record $3,500 a troy ounce for the first time as the dollar fell Tuesday AM, with headlines blaming Donald Trump's attack on US Federal Reserve chair Jay Powell.
U.S. IG Credit Valuation
US IG credit continues to be the "most attractive" for long credit recommendations for the 24th consecutive trading day. Although Monday's credit trading session was the first in five days, US IG credit spreads remain -15 to-17 bp tighter than the April 10 IG wide, with over 600 bonds ($1.1 trillion) still classified as "position long" or attractive for short-term (five days or less) trading.
The trading model continues to identify the front end of the USD corporate credit curve, particularly Floating Rate Notes, as the most attractive long credit recommendations within the systematic credit trading and research universe.
Today, eight large-cap issuers are scheduled to report, with only Capital One (COF) releasing results after market close.
The five-quarter grieve of increasing debt among the world's largest borrowers is expected to limit further tightening of credit spreads from current levels. Today, eight large-cap issuers will report, with only Capital One (COF) releasing results after market close.
Equity Correlation to IG Credit Spreads
S&P Consumer Staples names outperformed the index, while Consumer companies Lowe's (LOW), Home Depot (HD), McDonald's (MCD), and Walmart (WMT) saw credit spreads widen by (+3 to 5 bp) on Monday. Information Technology and Consumer Discretionary (auto) sectors were the weakest S&P 500 performers, with bonds from General Motors (GM), Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), and Toyota (TM) widening by 2 to 8 bp. Toyota, notably not an S&P 500 member, was the strongest performer in this group.
The correlation between US equity prices and US IG credit spreads remains above 0.70.
New Supply / Bond Maturities / Credit Fund outflows for April
(AXP) announced a proposed five-part deal (4nc3 fixed and FRN, 6nc5 fixed and FRN, and 11nc10), with the 6nc5 FRN ultimately withdrawn. According to our trading model, the AXP deal was the most attractive new supply of 2025, driven by AXP's strong balance sheet, favorable credit metrics, and credit curve trading levels as of Monday morning.
April 21 New Supply Recs
USD supply from the world's 250 largest borrowers in April 2025 totaled $42.5 billion, with 96% from financial issuers. Overall G-250 issuance in 2025 reached $280 billion, approximately $86 billion less than the amount raised by these borrowers in the US market as of April 21, 2024.
Despite $20 billion in corporate bond outflows from retail mutual funds and ETFs over the two weeks ending April 16, credit spread movements over the past five trading days have been unexpectedly stable.
Systematic Trading Model Indicators - Tuesday
Monday's US trading session had minimal impact on our systematic credit trading model. Credit spread movements, with most issuer bonds widening by 1 to 3 bp, were insufficient to shift "Attractive Position" recommendations to "Attractive Long."
The model continues its "long-only" stance across its 6,200-bond, 250-issuer USD large-cap universe for the 25th consecutive trading day, as attractive short recommendations remain near five-year lows, with over 87% of model recommendations classified as attractive long.
The most notable change in model recommendations is the increased attractiveness of Floating Rate Notes (FRNs).
Attractive Trading Sectors
Attractive Long Trading Sectors: US Regional Banks and Canadian Banks are the most attractive long trading sectors this morning within the 6,200 USD bond universe analyzed daily by our model.
Attractive Short Trading Sectors: Only Big 6 banks (eight issuers) have more than five attractive short recommendations according to the model.
Systematic Credit Indicators
Our quantitative analysis and stochastic trading algorithms are the sole drivers of identifying trading opportunities. These strategies are backtested on historical data to assess performance, pinpoint weaknesses, and generate attractive long/short trades.
The goal? Achieve a minimum of ±5 basis points of credit spread widening or tightening in as few trading days as possible, minimizing volatility risk while maximizing return on assets.
Recent Model Long Trading Indicators
Our systematic credit trading model advises against adding risk for issuers reporting results within the next 30 days. Most North American banks have already reported, with their next results due beyond 30 days from today. Over the weekend, we added the American Express (A2/A) AXP 5.442 01/30/36, issued at +90/10Y and trading at 117/10Y. Following Monday morning's announcement of new AXP supply, the trading model identifies the AXP Float 04/25/29 and AXP 5.667 04/25/36 as the most attractive long recommendations in our trading and research universe.
Tuesday Sample Trading Indicators Credit Spread Movement
Since February 24, we've published 19 secondary and new-issue trading recommendations from our model:
• 4 Indicators have reached their avoid-trading level.
• The remaining 15 Indicators have widened by an average of 12.5 bp.
• Across all 19 Indicators, spreads have widened by an average of 8.94 bp.
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 recs issued before February 22 that haven't yet hit the avoid-trading
threshold:
• Four are BBB-rated and have widened by 38.4 bp since being Indicated.
• They currently trade at 167.2 bp over the UST curve, with an 8.3-year duration.
• Our model projects an average spread tightening of -43.3 bp remaining.
• Six are single-A rated and have widened by +22.6 bp since being Indicated.
• They now trade at 115 bp over the UST curve, with a 10.9-year duration.
• The trading model indicates an average spread tightening of -29.5 bp remains.
Earnings results
25 Issuers have reported results since April 8. 21 of those issuers have reported balance sheet data and comprise $2.293 of total debt. Overall net debt is growing 4.43% QoQ. Issuers reporting on Tuesday
Issuers reporting on Tuesday
Name Ticker Date
Elevance Health Inc ELV US 04/22/25
General Electric Co GE US 04/22/25
RTX Corp RTX US 04/22/25
Verizon Communications Inc VZ US 04/22/25
Northrop Grumman Corp NOC US 04/22/25
Lockheed Martin Corp LMT US 04/22/25
Capital One Financial Corp COF US 04/22/25
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 affiliates, nor the authors of this report assume any 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.