Systematic Credit and Equity G-250 Trading Indicators for June 13, 2025
Good morning. We apologize for the errors in Thursday's report. Yesterday's May US PPI data drove US risk markets in opposite directions, a phenomenon occurring in fewer than 14% of trading days. Equities remain at all-time highs, while US credit markets lag. This week, we quantified the directional correlation between US equity and debt prices, noting that quarterly, year-to-date, and year-over-year return changes differ in magnitude.
We also calculated the significant increase in shareholder returns funded by corporate debt markets. With earnings season concluded, we detail corporate balance sheet dynamics and shareholder returns below.
Equity and Credit Market Dynamics
We observed declines in US equity and corporate debt trading volumes, alongside shifts in new supply in US versus foreign capital markets. Notably, the June US vs. European G-255 supply differential is statistically negligible (see page 3).
US retail credit fund inflows dropped from last week's 2025 peak of over $4 billion. However, this decline did not alter our systematic credit trading strategy from last Thursday.
Systematic Credit Model Portfolio Trading Strategy – Friday, June 13
Of the 6,000+ bonds in our research universe, 470 are trading near their 52-week tight or wide spread levels, 15% below average. The trading model recommends:
65% long/short positioning strategy.
35% allocated to front-end recommendations, with 70% in floating-rate notes (FRNs) maturing in three years or less, targeting undervalued, deleveraging bonds.
Key Trading Issues for Thursday
No investment-grade (IG) issuer bonds traded more than $500 million two-way on Thursday.
Dana (DAN, B1+/BB-): Not in our trading or research universe. Bonds rose up to 2.5 points following Moody's comments on the sale of its off-highway business and several equity upgrades.
Earnings Season Insights
1Q 2025 ushered in a new trading dynamic which moved both equity and corporate debt prices dramatically during the February to April calendar period. The conclusions are straight forward. Equity payouts via share repurchases and dividends are growing at double digit rates YoY, with revenue growing at half the rate of the payouts. Only a handful (21 by our count) of the world's 255 issuers of corporate debt – generated enough cash – to cover the payouts without needing to borrow funds.
Note that we have translated all 91 Non US financial reports into USD for the purposes of this quantitative presentation.
Net Cash: +$182 billion which increased $90 billion QOQ, and fell -$522 billion YoY.
Debt Outstanding (issuance less maturing and called bonds): $6.9 trillion +$175.2 billion QoQ; +$274 billion YoY.
Liquidity: $7.1 trillion +$265 billion QoQ, -$258.5 billion YoY.
Of the $17 trillion of borrowings from the 239 issuers that reported in the recent quarter $7 trillion of that debt was issued by 41 non – US banks. Of greater consequence, of the $11 trillion of liquidity on the 239 large global balance sheets $ 7 trillion (63%) of the world's non government liquidity is held by those same 41 banks
Conclusion – the majority of the world's private sector cash and bank loans are held at non – US banks.
Net Debt: +$ 757.9 billion which increased $132 billion QOQ, and $409 billion YoY.
Debt Outstanding (issuance less maturing and called bonds: $2,8 trillion +$102 billion QoQ; $90 billion YoY.
Liquidity: -$30 billion QoQ, -$319 billion YoY.
Conclusion: US banks are both re-levering and growing returns to shareholders 36x faster than revenues.
Net Debt: +$5.542 trillion which increased $99 billion QOQ, and $273 billion YoY.
Debt Outstanding (issuance less maturing and called bonds: $7.3 trillion +$83 billion QoQ; $163 billion YoY.
Liquidity: $1.9 trillion -$10 billion QoQ, -$110 billion YoY.
Conclusion: non – financial issuers (which includes Utility companies) are growing shareholder returns @ 2x the rate of revenue growth.
Net Debt: +$6.035 trillion which increased $134 billion QOQ, and $1,2 Trillion YoY.
Debt Outstanding (issuance less maturing and called bonds):$17 trillion +$360 billion QoQ; $527 bil YoY
Liquidity: $11 trillion, +$225 billion QoQ, -$678 billion YoY.
Conclusion: 54% of the world's larges borrowers are adding net debt. The vast majority of the net debt is being added by the 141 US issuers to fund returns to shareholders.
Thursday's U.S. Investment-Grade and High-Yield Credit Trading
Investment-Grade (IG) Trading Volume: 9.5% below average. G-255 Issuers: Accounted for 93 of the top 100 traded bonds, representing 96% of top 100 issuer volume and 77% of total TRACE volume.
High-Yield (HY) Trading Volume: 12.5% below average. G-255 Issuers: Accounted for 16 of the top 25 traded bonds, representing 68% of top 25 issuer volume and 58% of total TRACE volume.
Market Movement
U.S. CDX Index: Unchanged at 53.5 bp.
U.S. IG Cash Spreads: +2 bp wider to -2 bp tighter. Outperformers: Autos and Financials while industrial bonds underperformed.
CDX HY Index: Unchanged at 106.8 bp (per Bloomberg).
HY Cash Bonds: Were slightly wider overall, but certain HY TMT outperformed.
High-Yield Activity - U.S. dealers purchased just $500 mm of HY debt on Thursday just the second trading day in 7 dealers have not purchased more than $1 bil of HY USD bonds.
Most Bought HY Bonds by end users:
Warner Bros. Discovery (WBD, Ba2/BB-, attractive long, downgraded to HY).
DISH (DISH, B-/CCC+, attractive short).
Most Sold HY Bonds by end users:
EchoStar (SAATS, B-/CCC, attractive short).
Clear Channel Outdoor (CCO, B/CCC+, attractive long).
Investment-Grade Activity -End users bought roughly $1 bil of USD IG debt on Thursday.
Most Sold End-User Bonds:
Goldman Sachs (GS, A2/BBB+, attractive short).
Morgan Stanley (MS, A1/A- attractive short).
Most Bought Issuer Bonds:
Citigroup (C, A2/BBB+, attractive long).
ATT (T, Baa1/BBB+, attractive long).
Inflation, Economic Data, and Interest Rates
May PPI: +0.1%; tariff-related price hikes offset by softer U.S. services pricing.
Jobless Claims: Week ending June 7, initial claims up 7,000 YoY to 248,000. Week ending May 30, continuing claims up 31,000 YoY.
Attractive Trading Sectors
Long Opportunities
Single A TMT: 55 bonds ($90.3 billion) are undervalued, with 11 attractive long indicators by the trading model.
European Banks: 52 bonds ($66.2 billion) are undervalued, with 9 attractive long indicators.
Short Opportunities
U.S. Big 6 Banks (All Ratings): $621 billion in overvalued market capital across 242 bonds, with 45 short indicators.
Energy (All Ratings): $192 billion in overvalued market capital across 132 bonds, with 78 short indicators.
BBB TMT: $192 billion in overvalued market capital across 113 bonds, with 43 short indicators.
Single A Healthcare: $119 billion in overvalued market capital across 84 bonds, with 26 short indicators
Issuer News
BPCE (BPCEGP, Baa1/BBB+ attractive long): has entered into exclusive negotiations to acquire Novo Banco for almost €7 billion, and an agreement may be announced as soon as Friday.
Apple (AAPL Aaa/AA+ attractive long) has set an internal release target of spring 2026 for its delayed upgrade of Siri, which will allow the voice assistant to tap into consumers' personal data and on-screen activities.
Tencent Holdings Ltd (TENCNT A1/A+ attractive long) is considering a potential deal to acquire Nexon Co., a South Korean gaming company, to bolster its gaming operations.
Deutsche Bank's (DB Baa1/BBB attractive long) fixed income and currency traders are expected to deliver a better result than last year, with revenue rising by a "low single-digit" percentage. The firm's investment bank will be "in line with" the second quarter of last year, with a weaker-than-anticipated performance in advising companies on deals and securities issuance.
U.S. IG Credit Valuation and Spreads
Spread Recovery: U.S. credit spreads have recovered 45% of the expected widening from November 12, 2024, to April 10, 2025, after widening by +2 to +4 bp over the past two days.
Valuation: U.S. credit is closer to "fairly valued" than significantly overvalued, per our systematic credit trading model.
Global Equity Correlation to IG Credit Spreads
Divergence: On Thursday, U.S. equities and IG credit spreads diverged for the fifth time in 36 trading days. Equities rose +0.33%, while credit spreads widened amid materially lower U.S. interest rates.
Analysis: Key quantitative factors driving credit's relative underperformance versus equities are detailed in the daily Systematic Trading Summary and model indicator reports from Monday to Thursday.
New Supply, Bond Maturities, and Credit Fund Inflows for June
Tuesday's New Issues: Lloyds Banking Group (LLOYDS, A3/BBB+) 4.818 06/13/29 came 83/3Y (-1bp) and (LLOYDS, Baa1/BBB-) 6.068 06/13/36 subordinated (-5bp) are tighter to new issue. Australia and New Zealand Banking Group (ANZ A3, A-) 5.816 06/18/36 subordinated is (+3bp) wider.
We have seen no other G–255 USD supply since Tuesday.
Volkswagen Bank GmbH (VW, A1/BBB+) Orange SA (ORAFP Baa3/BBB-)
€800m 3Y Fixed (June 19, 2028) at MS+83 €750m PerpNC7 Sub Variable at MS+164.8
€EU700m 6Y Fixed (June 19, 2031) at MS+128
BNP Paribas SA (BNP, Baa2/BBB+ ABN AMRO Bank NV (ABNANV) Aa3/A/A+
€10.5NC5.5 Sub Variable at MS+155 $1b 5Y Reg S Sr Pref FRN at SOFR+95
All sold bonds in Europe on Thursday.
Thus far in June 12 G–255 issuers have sold 25 tranches of new bonds totalling $20.1 billion. While in Europe 18 issuers have sold 27 tranches of new bonds totalling €24 billion
Fund Flows: according to LSEG Lipper, during the week ended June 11:
Short and intermediate investment-grade bonds: $2.29b inflow vs. a 6-month high inflow of $4.1b
High-yield notes: $1.11b inflow vs. $1.46b inflow
May's HY inflow was an 18-month high of $6.4 billion
Treasuries: $135.3m outflow vs. $2.74b outflow
US leveraged loans: $354.4m inflow vs. $36.5m inflow
Mortgage-related: $50.4m inflow vs. $62.8m outflow
Systematic Trading Model Indicators and Strategy
Model Output
397 attractive short indicators: down 63 from Thursday, 8% below average, signaling slight overvaluation. Roughly 40% of Thursday's decline in short indicators were in Big 6 banks.
73 attractive long indicators: Up 14 from Thursday.
Weekly Trading Strategy (Ending June 20)
Model output unchanged until next Thursday's fund flow data.
Prioritize long positions in deleveraging new issues with attractive valuations.
Avoid adding short positions until attractive short indicators exceed 400 and weekly fund inflows fall below $1.5 billion.
Systematic Portfolio Trading Model Indicators: Short one bond for each bond added long.
Systematic Credit Indicators
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 managing volatility risk.
Most Recent Model Trading Indicators
Union Pacific (UNP, A3/A-): UNP 5.60% 12/01/2054 is one of 10 new issue indicators published before February 23, 2025, that has not reached its avoid trading level.
Sample Trade Performance Report (January 4, 2025 – June 12, 2025)
Total Trades: 117 (1% of total indicators).
Performance Summary:
Long Indicators: 70/89 reached avoid-trading levels, tightening by -9.95 bp.
Short Indicators: 24/28 reached avoid-trading levels, widening by +5.3 bp.
Remaining Longs: 19 tightened by -1.91 bp.
Remaining Shorts: 4 tightened by -5.25 bp.
Average Spread Movement: ±7.05 bp in the indicated direction.
Success Rate: 80% of indicators reached avoid-trading levels (10% below normal).
Notes:
Initial indicators based on TRACE print (or new issue price) at indicator date.
Avoid indicators based on TRACE print trade at the "avoid point" on the trade date.
Recent Performance (Since May 15, 2025)
21 long indicators hit avoid-trading levels, contributing -1.46 bp to overall spread tightening for the 70 long trades.
Overall performance improved from ±4.91 bp to ±7.05 bp across 117 sample trades.
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.
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.