G-250 USD New Issue Supply with Trading Indicators for April 23, 2025
Good morning! We're not much for citing headlines particularly amidst a busy week of earnings, central bank commentary, and economic data. The news about Donald Trump not firing Jerome Powell and potentially cutting China tariffs substantially (contingent on a US-China trade deal) appears to be driving a risk-on sentiment, as evidenced by global equity futures showing no fear for US risk markets. However, We're skeptical about a full reversal of capital outflows and sustained international investor trust in Trump aligns with a cautious approach. Our focus remains on publicly disseminated information, balance sheet leverage, and trading levels.
Tuesday global risk trading was driven by both macro sentiment and these corporate reports aligns with the broader market's reaction to the tariff relief news and stable guidance from most of Tuesday's earnings reports (Elevance Health (ELV) , GE Aerospace (GE), Northrop Grumman (NOC), Raytheon Technologies (RTX) , Verizon (VZ) , Danaher (DHR), Lockheed Martin (LMT) and Capital One (COF) . Our trading model output does not recommend doubling down on US credit. Rather, the model's continued "long only" disposition, includes on US regional and Canadian banks and issuers that have reported results and are de-levering their balance sheets.
Tuesday's US IG Credit Trading:
While credit was stronger from the opening, the IG CDX spread tightened by 1.5 bp to 72.2, and cash bond spreads tightened by 3.5 bp. Consumer and Utilities sectors led performance, with single-A TMT and Energy sectors trailing.
New issues outperformed secondary bonds, and longer-dated bonds surpassed the belly of the curve. Trading volumes stayed below average, with minimal net buying of IG credit. Single-A rated bonds saw stronger demand and outperformed, while BBB bonds faced selling pressure. AT&T (T) bonds widened slightly at the long end, and new Kinder Morgan (KMI) bonds, though tighter than their issuance spread, were among the most sold.
Systematic Trading and outflows/earnings reports/current headline risk
US mutual fund and ETF credit flows will be reported tomorrow. Of the world's largest issuers, 33 have now released quarterly results. Three key takeaways:
-US corporate balance sheets are increasing debt at approximately a 4% rate for the sixth straight quarter.
-Financial issuers are accumulating debt at a faster pace than non-financial issuers.
-Capital allocated to share repurchasing and dividend payments is growing at least 6% year-over-year, outpacing earnings and revenue growth.
Headline risks, such as potential US trade tariffs and White House attempts to influence the Federal Reserve and US State Department, have subsided for the time being.
As to how to trade the current volatility?
Our trading model currently views US regional bank bonds as more attractive than those of the Big 6 banks. Following Tuesday's results, the secondary trading curves for Verizon (VZ), Raytheon Technologies (RTX), and Elevance Health (ELV) are compelling. Additionally, the model identifies entry points for de-levering issuers through the new issue market, with State Street Corp (STT) 5-year bonds issued Tuesday and recent American Express (AXP) bonds issued Monday serving as prime examples.
Issuer news on Tuesday
Intel Corp (INTC) plans to reduce its workforce by over 20%, with the announcement expected alongside Thursday's earnings, aiming to restore an engineering-focused culture.
BHP Group (BHP) will soon initiate a search for a new CEO to succeed Mike Henry, with key internal executives competing for the role.
Volvo AB reported operating income of 13.3 billion kronor ($1.4 billion), below analyst expectations and down from 18.2 billion kronor in 1Q 2024. Revenue fell 7% year-over-year in 1Q 2025, truck unit sales dropped 9% year-over-year, and Volvo reduced its 2025 US heavy-duty truck production forecast by 8.5%.
Volvo plans to lay off up to 800 workers at three US facilities in the coming months due to uncertainty surrounding tariffs.
Volkswagen AG's (VW) plans to keep prices flat in the US through next month.
Inflation Readings and Government Bonds
Federal Reserve Governor Adriana Kugler says tariffs will likely put upward pressure on prices and have a bigger economic effect than previously expected.
US consumer sentiment dropped to 50.8, marking the second-lowest level on record, driven by rising tariff concerns. Short- and long-term inflation expectations surged to multi-decade highs, with consumers projecting price increases of 6.7% over the next year and 4.4% over the next five to ten years.
U.S. IG Credit Valuation
US investment-grade (IG) credit remains the "most attractive" for long credit Indicator for the 26th consecutive trading day. Tuesday's spread tightening largely offset Monday's widening in US secondary IG bonds. For the week, US IG credit spreads are 18 to 20 bp tighter than the April 10 peak, with over 600 bonds ($1.1 trillion) still classified as "position long" or appealing for short-term (five days or less) trading.
The trading model continues to highlight the front end of the USD corporate credit curve, particularly Floating Rate Notes, as the most compelling long credit opportunities within the systematic credit trading and research universe.
Equity Correlation to IG Credit Spreads
The correlation between US equity prices and US corporate 10-year credit spreads remains above 0.70. However, single-A TMT offers few attractive long trading recommendations, with over 60 "attractive position" recommendations totaling $124 billion. Technology equities have been among the bottom five performing groups in the US equity markets since February 22.
US regional banks, which have reported results with minimal impact from US trade tariffs on their outlook, also rank among the weakest performing equity groups over the past seven weeks. Additionally, US regional bank bonds have underperformed the broader investment-grade market since February 22.
New Supply / Bond Maturities / Credit Fund outflows for April
State Street Corp (STT Aa3/A) issued a modest $1 billion deal, comprising a 3nc2 fixed and floating rate note and a 5-year bullet, both attractively priced. The 5-year bullet was viewed as Tuesday's most compelling new issue bond. Kinder Morgan (BBB/Baa2) issued 5- and 10-year bonds, with the KMI 5.15 06/01/30 priced fairly and the KMI 5.85 06/01/35 priced more aggressively. Despite the trading model's reservations about Kinder Morgan's re-levering balance sheet, both new issues performed strongly once freed to trade.
Systematic Trading Model Indicators – Wednesday
Tuesday's US trading session had minimal impact on our systematic credit trading model. Credit spread movements were not enough to eliminate attractive long Indicators or increase the number of attractive short trading Indicators.
The model continues its "long-only" stance across its 6,200-bond, 250-issuer USD large-cap universe for the 26th consecutive trading day, as attractive short Indicators remain near five-year lows, with almost 87% of model Indicators classified as attractive long.
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 (9 bonds) have more than five attractive short indicators 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.
Most Recent Model 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. Yesterday we added the American Express AXP Float 04/25/29 and AXP 5.667 04/25/36 as the most attractive long recommendations in our trading and research universe.
Recent Model Long Trading Indicators
Within one day, the American Express (AXP) 5.667 04/25/36 reached its avoid trading level. Similarly, the Goldman Sachs (GS) 4.937 04/23/28 and JPMorgan (JPM) 5.103 04/22/31 hit their avoid trading levels on Tuesday. Today, the trading model adds the following attractive Indicators: Capital One (Baa1/BBB) COF 6.183 01/30/36 Subordinated at 219/10Y with 18 bp of spread tightening, Verizon (Baa1/BBB) VZ 5.25 04/02/35 at 106/10Y with 7 bp of spread tightening, and Raytheon Technologies (Baa1/BBB+) RTX 6 03/15/31 at 91/5Y with 9 bp of credit tightening.
Wednesday Sample Trading Indicator Credit Spread Movement
Since February 24, we've published 21 secondary and new-issue trading Indicators from our model:
• 7 Indicators have reached their avoid-trading level.
• The remaining 14 Indicators have widened by an average of 8.94 bp.
• Across all 19 Indicators, spreads have widened by an average of 6.9 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 36.3 bp since being Indicated.
• They currently trade at 161.3 bp over the UST curve, with an 8.3-year duration.
• Our model projects an average spread tightening of -41.7 bp remaining.
• Six are single-A rated and have widened by +21.5 bp since Indicated.
• They now trade at 113.8 bp over the UST curve, with a 10.9-year duration.
• The trading model indicates an average spread tightening of -28.3 bp remains.
Earnings results
33 Issuers have reported results since April 8. 29 of those issuers have reported balance sheet data and comprise $2.9 trillion of total debt. Overall net debt is growing 4.1% QoQ.
Issuers we haven't covered reporting on Tuesday
Capital One (COF) reported very strong 1Q results that beat expectations. COF is retaining capital, reducing debt, adding cash and investments and the performance of their loan book while shrinking slightly is improving significantly.
The COF 6.183 01/30/36 is a standout long Indicator, driven by Capital One's de-levering balance sheet, strong 1Q results, and alignment with the model's focus on US regional banks and longer-dated bonds. Its 18 bp spread tightening and non-serial issuer status further enhance its appeal in a market favoring selective IG credit exposure. The Indicator complements existing longs (VZ, RTX, ELV) and reinforces the model's disciplined avoidance of weaker credits (e.g., NOC, DHR, LMT bonds).
If you'd like specific spread data, comparative bond analysis (e.g., COF vs. STT or VZ), or further details on COF's loan book or balance sheet metrics, let me know, and I can dive deeper while staying within the model's framework. Additionally, if you have other regional bank bonds or new issues to evaluate, I can integrate them into the analysis.
General Observations from earnings reports: