Systematic Credit and Equity G-250 Trading Indicators for June 17, 2025
Good morning. Today's European market strategy reports primarily focus on U.S. interest rates, with expectations of two rate cuts in the final three Federal Reserve meetings of 2025. These expectations, combined with ongoing trade deal uncertainties, have driven an increase in €-denominated bond supply from the world's largest corporate issuers during the first two months of Q2 2025. However, issuance from the top 255 corporate borrowers has slowed in June 2025 across both U.S. and European markets.
Monday's four-part Enbridge (ENBC, Baa2/BBB+) deal totaling $2.25 billion, may suggest that large corporate borrowers anticipate two U.S. rate cuts in 2025. EOG, though not among the largest issuers, became the sixth issuer in June to issue tranches exceeding $1 billion and the third non-financial issuer to do so in the past month. In Europe, no new deals from the largest issuers had been recorded for over a week until three new deals emerged this morning.
The top 255 issuers, our trading and research universe, account for approximately 70% of outstanding bonds in USD, GBP, and EUR, and over 70% of daily trading volume. With a recent pause in large-cap corporate bond supply, strong U.S. retail corporate bond inflows over the past three weeks, and over $80 billion in large-cap bond maturities and redemptions across all three markets in the past month, credit spreads have outperformed equity gains for the first time this year. Monday's tightening in investment-grade (IG) credit spreads has pushed our credit model further into overvalued territory, though the weekly trading strategy remains unchanged until Thursday's fund flow report.
Systematic Credit Model Portfolio Trading Strategy – Tuesday, June 17, 2025
Of the 6,000+ bonds in our research universe, 591 are trading near their 52-week tight or wide spread levels, which is slightly higher than historical averages. Despite Monday's significant credit spread tightening, our trading model indicates:
65% long/short positioning strategy.
35% allocated to front-end indicators, with 70% in floating-rate notes (FRNs) maturing in three years or less, targeting undervalued, deleveraging bonds.
Attractive short indicators remain moderately elevated, approximately 30% above the long-term average.
The model continues to see TMT and Yankee banks as attractive longs at wider levels (please see page 6 for 1Q European Bank Review) and US Banks are attractive shorts at slightly tighter levels.
Key Trading Issues for Monday
Headlines related to Medicare significantly impacted Single A, BBB, and BB-rated healthcare bonds on Monday. However, overall trading volume remained below average.
Monday's U.S. Investment-Grade and High-Yield Credit Trading
Investment-Grade (IG) Trading Volume: -4% below average. G-255 Issuers: Accounted for 91 of the top 100 traded bonds, representing 95% of top 100 issuer volume and 72% of total TRACE volume.
High-Yield (HY) Trading Volume: -13% below average. G-255 Issuers: Accounted for 17 of the top 25 traded bonds, representing 69% of top 25 issuer volume and 64% of total TRACE volume.
Market Movement
U.S. CDX Index: -2.5bp wider at 54.5 bp revering Friday's widening.
U.S. IG Cash Spreads: (-2 to -5bp) with the lower end of the Financial Capital structure, Energy and BBB TMT outperforming.
CDX HY Index: +.3 at 106.7 bp (per Bloomberg).
HY Cash Bonds: Were better in most sectors (particularly TMT) with Healthcare the only underperforming sector.
High-Yield Activity - U.S. dealers purchased over $1 billion of HY bonds for the 7th trading day in 9 according to trace.
Most Bought HY Bonds by end users:
Civitas (CIVI) was the most bought issuer post class action litigation news.
Most Sold HY Bonds by end users:
Centene (CNC, attractive short), was the most sold HY issuer post speculation relating to several medicare programs in the current budget.
Investment-Grade Activity End users neither net bought or sold IG bonds on Monday.
Most Bought End-User Bonds:
Bank of America (BAC, A1/A-, attractive short).
JP Morgan Chase (JPM, A1/A attractive short).
Most Sold Issuer Bonds:
Occidental Petroleum (OXY, Baa3/BB+ attractive short).
Inflation, Economic Data, and Interest Rates
New York Fed Empire Index for June fell to -16.0 from -9.2 in May.
Prices paid fell to 46.8 vs 59.0
New orders fell to -14.2 vs 7.0
Six-month forward general business conditions rose to 21.2 vs -2.0
UST 10Y rates are (-13bp) lower YTD @ 4.44%
Attractive Trading Sectors
Long Opportunities
None: 132 bonds ($200.2 billion) are undervalued, with 28 attractive long indicators by the trading model.
Short Opportunities
U.S. Big 6 Banks (All Ratings): $680 billion in overvalued market capital across 266 bonds, with 63 short indicators.
Energy (All Ratings): $209 billion in overvalued market capital across 143 bonds, with 96 short indicators.
BBB TMT: $207 billion in overvalued market capital across 120 bonds, with 60 short indicators.
Single A Healthcare: $146.7 billion in overvalued market capital across 102 bonds, with 45 short indicators.
Issuer News
American Express (AXP, A2/A-, attractive long): Announced its "largest investment ever" in a credit-card refresh, updating consumer and business Platinum cards and airport lounges worldwide, to be implemented later this year.
ING Groep NV (INTNED, A2/A-, attractive long): Considering a Significant Risk Transfer (SRT) deal tied to a €5 billion portfolio of corporate loans.
SoftBank Group Corp (SOFTBK, BB+, attractive short): Seeking to raise up to $4.9 billion through an unregistered overnight block sale of 21.5 million T-Mobile US Inc. (TMUS, Baa2/BBB, attractive short) shares, priced at $224–$228 each, a 3% discount to T-Mobile US's Monday close.
UnitedHealth Group (UNH, A3/A-, attractive short): Reducing commissions for brokers on select Medicare Advantage plans to discourage sales of those plans.
Elevance Health Inc. (ELV, Baa2/A, attractive long): Halted digital enrollments for most of its Medicare plans earlier this year.
U.S. IG Credit Valuation and Spreads
Spread Recovery: U.S. credit spreads have recovered 55% of the widening observed from November 12, 2024, to April 10, 2025, and have fully recovered the widening from last Friday and Monday.
Valuation: U.S. credit is currently overvalued but remains below the midpoint of the overvalued to most overvalued range.
Global Equity Correlation to IG Credit Spreads
Monday was the 34th of 38 trading days in which U.S. credit spreads tracked U.S. equity price movements. The performance gap between the two markets continues to narrow slightly.
S&P 500: Up 1.25% month-over-month.
DJIA: Slightly lower month-over-month.
U.S. Credit Spreads: Tightened by at least 10 basis points over the same period.
Global Equity Correlation to IG Credit Spreads
Monday marked the 34th of 38 trading days when US credit followed US equity prices. The performance disparity between the 2 markets continues to narrow minimally. The S&P 500 is up 1.25% MoM while the DJIA is slightly lower. US credit spreads are at least (-10bp) over the the same time period.
New Supply, Bond Maturities, and Credit Fund Inflows for June
One new G-255 issue on Monday from Enbridge (ENBC, Baa2/BBB+, attractive short). The four-tranche deal raised $2.25 billion, with only the 10-year ENBC bond considered attractive by our trading model.
Hyundai Capital America (HYNMTR, A3/A-, attractive long) is in the market this morning, offering 2-year fixed and floating-rate notes (FRN), 3-year fixed and FRN, 5-year FRN, and 7-year fixed bonds.
Systematic Trading Model Indicators and Strategy
Model Output
563 attractive short indicators: 72 more than Monday, 30% above average, leaving the IG credit market overvalued. Almost all of the increased short indicators came from TMT and Energy bonds.
28 attractive long indicators: a drop of 40 attractive long indicators from Monday. Most of the decrease in attractive long indicators came from UK Bank, TMT and Energy bonds.
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 minimizing volatility risk.
Most Recent Model Trading Indicators
Union Pacific (UNP, A3/A-): UNP 5.60% 12/01/2054 and UNP 5.1% 2/20/35 are twi of 10 new issue indicators published before February 23, 2025, that has not reached its avoid trading level.
The model adds the new Enbridge (ENBCN, Baa2/ BBB+) 5.55 6/20/35 indicator as a new attractive long on Monday.
The model adds the Enterprise Products (EPD. A3/A-) 2.8 1/31/30 as an attractive short @ 49/5Y
Sample Trade Performance Report (January 4, 2025 – June 16, 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: 25/28 reached avoid-trading levels, widening by +5.25 bp.
Remaining Longs: 19 widened by +.63 bp.
Remaining Shorts: 3 tightened by -9 bp.
Average Spread Movement: ±6.97 bp in the indicated direction.
Success Rate: 81% of indicators reached avoid-trading levels (9% below normal).
Notes:
Initial indicator based on TRACE print (or new issue price) at indicated 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.
1 short indicator hit avoid trading level (+5 from model indicated level)
Overall performance improved from ±4.91 bp to ±6.97 bp across 117 sample trades.
Earnings Season Insights
Balance Sheet and Earnings Trends
For the past six quarters, the world's 255 largest corporate debt issuers have exhibited expanding balance sheets. Our trading model tracks sector-specific balance sheet and operating earnings trends. In Q1 2025, European banks demonstrated notable improvements in key financial metrics, including operating earnings, credit quality, CET1 capital, operating margins, liquidity, and balance sheet leverage. These improvements underpin the trading model's indicators for the attractiveness of Yankee bank secondary and new issue bonds in April, following Q1 earnings reports.
Key Financial Metrics
Net Income: Increased by $3 billion (+10% YoY) and $184.5 billion (+26% YoY), driven by expanding margins due to lower credit writedowns.
Revenue: Grew by 4.8% YoY.
Operating Margin: Improved by 170 basis points YoY.
Dividends and Share Repurchases: Not consistently reported across all banks.
Debt and Liquidity
Net Debt: Decreased by $55 billion quarter-over-quarter (QoQ) but increased by $172 billion year-over-year (YoY).
Debt Issuance: Rose by $34.5 billion QoQ and $74 billion YoY, amid $54 billion in deposit outflows YoY for the 20 European banks.
Liquidity: Increased by $93.3 billion QoQ but fell by $210 billion YoY, as assets shifted toward marketable securities in response to declining European interest rates.
Leverage Trends - Of the 20 European banks reporting Q1 2025 results:
16 banks are deleveraging.
4 banks are releveraging.
French Banks' Significance
French banks account for just over 25% of the European banking sector's net income but represent over one-third of Europe's deposit and asset base, holding $368 billion in net cash. The credit trading model has maintained an attractive long indicator on all four French banks since their Q1 2025 results were reported, reflecting their strong financial position and market significance.
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.