Systematic Credit and Equity G-255 Trading Indicators for July 23, 2025
Good morning: On Tuesday, US equity and credit market valuation trends diverged due to differing perceptions of reported issuer results, new supply absorption, and trade tariff impacts. UniCredit (UCGIM, Baa1/BBB+, attractive long) reported strong results today. In contrast, Equinor (EQNR, Aa3/AA-) showed different outcomes. The term "adjusted" is defined as something slightly altered to better align with its surroundings, and it remains the most frequently used term in finance today.
I highlight this term for another reason: there's significant speculation about AI becoming central to trading and asset management in the coming years. While our credit trading model and risk management system leverage AI to generate 32,000 daily indicators, these rely solely on reported, not "adjusted," data. Systematic trading depends on issuer-reported information without forecasting, producing stochastic outcome probabilities, such as the likelihood of an issuer accessing the market post-earnings.
If AI begins forecasting "adjusted earnings," I'd invoke another movie line: "Run, Forrest, Run!" from Forrest Gump.
Earnings Summary for the Week of July 24
Following yesterday's reports, our trading model identifies 14 issuers as attractive longs and 29 as attractive shorts. On Monday, we will release the initial 2Q model layout, detailing bond dispersion for Single A, BBB, and High Yield (HY) categories by model indicator. Preliminary data suggests an increase in bonds available for shorting and a decrease in bonds available for purchase since the earnings season began.
Tuesday's credit trading was subdued, with all nine reporting issuers indicating increased balance sheet usage to fund share repurchasing and dividends.
Aerospace and Defense results, except for Raytheon (RTX, Baa1/BBB+), were underwhelming. Industry revenue growth lags borrowing capacity by a factor of 4x. However, issuers are exercising restraint in shareholder returns by reducing share repurchasing as operating cash flow declines.
Texas Instruments (TXN) and Coca Cola (KO) adopted a different strategy, borrowing heavily to fund shareholder payouts.
Regarding the broader trend of re-leveraging balance sheets to support share prices, the "cat is out of the bag." Risk markets are increasingly discerning which issuers have the cash flow to sustain shareholder payments and which do not.
G – 255 Issuers reporting results Tuesday
General Motors GM, Baa2/BBB attractive short)
KeyCorp (KEY, Baa2/BBB attractive long)
Coca Cola (KO A1/A+ attractive short)
Philip Morris (PM A2/A- attractive short)
Danaher Corp (DHR A3/A- attractive short)
Lockheed Martin (LMT A2/A- attractive short)
Raytheon (RTX Baa1/BBB+ attractive short)
Northrop Grumman (NOC Baa1/BBB+ attractive short)
Tenet Healthcare (Ba3/BB attractive long)
Capital One Financial (COF Baa1/BBB+ attractive long)
Texas Instruments (TXN Aa3/A+ attractive short)
G-255 Issuers reporting results Wednesday
Equinor (EQNR, Aa3/AA- attractive long) Reported
Unicredit (UCGIM Baa1/BBB+ attractive long) Reported
ATT (T Baa2/BBB attractive long) Bef – Mkt
Fiserv Inc (FI, Baa2/BBB attractive short) Bef – Mkt
Next Era Energy (NEE Baa1/BBB+ attractive short) Bef - Mkt
Thermo Fisher (TMO),A3/A- attractive long) Bef - Mkt
Rogers Communications (RCICN, Baa3/BBB- attractive short) Bef- Mkt
Crown Castle (CCI, A2/A- attractive short) Aft - Mkt
Alphabet (GOOGL Aa2/AA+ attractive long) Aft - Mkt
IBM (IBM Baa1/BBB attractive short) Aft - Mkt
T - Mobil (TMUS, Baa2/BBB attractive short) Aft - Mkt
CSX (CSX A3/BBB+ attractive short ) Aft - Mkt
Systematic Trading Model Indicators and Strategy
The Systematic Trading Model creates trading indicators for over 6,000 bonds daily. Currently, 841 bonds are within 20% of their 52-week tight or wide spread levels, 51% above historical averages, but not at an extreme. Current trading indicator allocation unchanged since July 10.
Current Trading Allocation Strategy
57% Long: Focus on undervalued, deleveraging bonds.
23% Short: Target overvalued bonds in re-levering sectors.
20% Front-End Allocation: 75% in floating-rate notes maturing within 3 years.
Performance: Of 133 long/short trades in 2025 (marked to market via TRACE), 90% achieved ±5 bp targets, averaging ±7.56 bp per trade.
Recent Activity: Short position additions paused on July 2, 2025, due to non-replaced long positions from late June to early July. Between June 30 and July 16, 2025, 13 long trade indicators reached "avoid" levels, shifting the long/short basket to a "more short" stance. 4 new attractive long new-issue recommendations were published over the past week.
Sector Trading Indicators
Long Opportunities:
Yankee Banks (especially floating-rate notes).
Single A TMT
Short Opportunities:
U.S. Big 6 Money Center Banks.
Single A, BBB and BB Energy issuers re-levering
Single A and BBB Industrials (re-levering, tight spreads).
Risk Management
The model avoids adding risk to G-255 issuers scheduled to report results within 30 days, complying with global regulatory requirements for reporting material events.
Inflation, Economic Data, and Interest Rates
Richmond Fed Manufacturing Survey for July fell to -20 in July from -8 in June.
-New orders rose to 18.4 vs 2.3
-Shipments fell to -18 vs -5
-Capacity Utilization fell to -14 vs -5
-July prices paid fell to 5.65 vs 6.1
-July prices received fell to 3.16 vs 3.
Tuesday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: -11% below average
-G-255 Issuers: 98 of the top 100 traded issuer bonds accounted for 97% of top 100 issuer volume and 81% of total TRACE volume.
High-Yield (HY) Trading
-Volume: -8% below average
-G-255 Issuers: 14 of the top 25 traded bonds accounted for 54% of top 25 issuer volume and 48% of total TRACE volume.
Market Movement
U.S. CDX Index: Unchanged @ 50.1 bp
U.S. IG Cash Spreads: Ranged from unchanged to (+3bp) wider with BBB finance and BBB Industrials underperforming.
CDX HY Index: unchanged @ 107.5 (per Bloomberg)
HY Cash Bonds: BB Autos outperformed while BB TMT and BB financials underperformed.
High-Yield Activity
- Dealers bought roughly $ 300 million of HY bonds Tuesday.
Most Bought HY Bonds
- Celenese (CE Ba1/BB+ attractive attractive short)
Most Sold HY Bonds
- CoreWeave (CRWV B1/B)
Investment-Grade Activity
- Dealers bought roughly $800mm if IG bonds Tuesday.
Most Sold Sector: Away from New Issue - none
-
Most Bought Sector: BBB Healthcare
- HCA (HCA Baa3/BBB- attractive short)
- CVS (CVS Baa3/BBB attractive long)
Attractive Trading Sectors
Long Opportunities
Floating Rate Notes of de-levering issuers Overall model indicators 199 bonds ($289,7 billion) are considered undervalued by the stochastic credit trading model with 74 attractive long trade indicators for the entire 6,000 bond universe.
Short Opportunities
1476 bonds ($1.43 trillion) are considered overvalued by the stochastic credit trading model with 772 attractive short trade indicators for the entire 6,000 bond universe.
U.S. Big 6 Banks (All Ratings): $725.6 billion in overvalued market capital across 291 bonds, with 154 short indicators.
BBB TMT $214.7 billion in overvalued market capital across 127 bonds, with 46 short indicators.
Single A and BBB industrials $178.2 billion in overvalued market capital across 141 bonds, with 63 short indicators.
Single A, BBB and BB energy $243. 7 billion in overvalued market capital across 135 bonds, with 91 short indicators.
Issuer News
Morgan Stanley (MS A1/A+ attractive short) is reportedly being investigated by FINRA focusing US bank clients, risk ranking and other practices from October 2021 through September 2024.
UniCredit SpA (UCGIM Baa1/BBB+ attractive long) dropped its bid for rival Banco BPM SpA, ending an eight-month standoff with its rival and the Italian government over the plan to create the country's largest lender. UniCredit SpA reported strong results this AM.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 45% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: U.S. credit remains overvalued based on output from our credit trading model.
2025 10 Year credit spreads: Are wider YTD and YoY
UST 10Y rates are +12.5 bp higher YoY and -19.1bp higher YTD
Global Equity Correlation to IG Credit Spreads
U.S. IG credit spreads and U.S. equity prices moved in opposite direction for 9th trading day in 65 Wednesday. As noted above and below – 9 of the 11 issuers reporting Tuesday continue to add net debt. In all 9 cases the additional leverage is going to fund share repurchase and dividend payments.
While credit spread movement has an 80% correlation to the equity price movement, the magnitude of these moves has changes markedly over the past 2 years. This owes to the world's largest corporates using balance sheet to fund equity share repurchase and dividend payout. Thus far 9 of the 29 issuers that are re-levering their balance sheet as of June 30 have already sold more USD debt.
New Supply, Bond Maturities, and Credit Fund Inflows for July
GE (A3/A-) became the second de-levering G – 255 issuer of 9 that have come to the US market the since last Wednesday. PNC Corp (PNC A2/A-) sold bank and holdco notes last week. Just $4.8 billion of the $24.8 billion sold by G – 255 borrowers in the past 4 trading days has come from the world's largest corporate bond issuers that aren't expanding balance sheet.
Wells Fargo (A1/BBB+ attractive short)e tapped their on the run 6nc5 (WFC 5.15 4/23/31) which came at a very attractive price for Wells Fargo and the current bond holders. As for the WFC Tap buyers? Not as much.
Fedex (FDX, Baa2/BBB, attractive short) is selling 7Y and 10Y € bonds this AM.
Systematic Trading Model Indicators and Strategy
Model Output
Attractive short indicators 772. 29 More than Tuesday.
74 attractive long indicators: 9 More than Tuesday.
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Focus on deleveraging new issues with attractive valuations. Ideal maturity for long positions is 10 years.
Short Positions: Target re-levering issuers trading at the deepest discount from their model avoid point. Avoid short positions with maturities around 7 years, as they are the least attractive.
Replace Longs: Replace Systematic attractive long positions that have reached their avoid trading level.
Portfolio Trading Hurdle: Once the portfolio reaches a 75% long hurdle, maintain a 1:1 long-to-short ratio for additional positions.
Current Status of trading indicators below:
12 long trades have reached their avoid trading levels in July and thus far, have been replaced by 4 new issue indicators
Systematic Credit Trading Strategy July 23, 2025
Closed Positions: 12 in the past 2 weeks
Enter New Longs: Today the model adds: GE Aerospace (GE A3/A-) 4.9 1/29/36.
Monitor Trade Position (Portfolio) Composition:
Track the percentage of long positions relative to the total portfolio.
If replacing the long positions that have reached their avoid trading level pushes the portfolio above the 75% long hurdle, initiate short positions in re-levering issuers (avoiding 7-year maturities) at a 1:1 ratio for any additional long positions.
Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic model.
Systematic Credit Long/Short Basket Trade
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 minimizing volatility risk. The model employs only publicly available data.
Current Sample Systematic Basket bond trades based on trading strategy
Trading model indicators added today are the new issue long GE Aerospace (A3/A-) GE 4.9 07/29/35
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – July 22, 2025)
Total Trades: 133 (1% of total trades).
Performance Summary:
Long Indicators: 93/102 reached avoid-trading levels, tightening by -9.54 bp.
Short Indicators: 27/31 reached avoid-trading levels, widening by +5.49 bp.
Remaining Longs: 10 tightened by -4.55 bp.
Remaining Shorts: 4 tightened by -13bp.
Average Spread Movement: ±7.64 bp in the recommended direction.
Success Rate: 90% of indicators reached avoid-trading levels which is normal.
Average trade holding period: (22 trading days) + 17% above normal.
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.