Systematic Credit and Equity G-255 Trading Indicators for August 6, 2025
Good morning! Earnings reports are rolling in rapidly, keeping everyone on their toes. We've now seen enough issuer results to add BBB Energy as a fifth sector (alongside Euro Yankee Banks, Single A TMT, BBB TMT, and Japanese Yankee Banks) reducing balance sheet debt. While these shifts in BBB Energy issuer balance sheets have not yet translated into "attractive long" trading indicators, the sector's deleveraging will significantly influence the systematic trading model's output over the next three months.
With sufficient US economic and global earnings data, we can draw quantitative conclusions about US trade tariffs. The communication of these tariffs via Bloomberg and other business news outlets is neither fully accurate nor balanced. Moreover, the US White House's tariff communication has been inadequate, and the design and implementation of the tariffs have been, at best, disorganized.
With 65% of the world's largest corporates reporting June results and three months of economic data, we can quantitatively state:
Tariff Winners (All Five):
(1) Technology industry
(2) Energy transport, pipeline, and distribution companies
(3) Domestic leisure/travel companies
(4) Yankee banks
(5) Anything crypto
Positive Economic Impact from Tariffs:
Next question, please.
Tariff Losers:
(1) US healthcare providers, global pharma companies
(2) US retailers / US consumers
(3) Global consumer companies
(4) Auto manufacturers and finance companies
(5) US aerospace and defense companies
(6) Global oil companies
(7) US banks
(8) US transports
(9) Global chemical manufacturers
(10) US real estate issuers
The public media's portrayal of the tariffs suggests the Trump White House may be using them as political leverage to address longstanding grievances, though this could stem solely from communication missteps.
Systematic Trading Model Indicators:
"Buy the dips" remains effective. Equities are expected to continue outperforming corporate bonds. Strategy: Long Yankees / Short Domestics. Certain BBB sectors are deleveraging, while Single A Healthcare, Consumer, and Energy are re-leveraging. The top-performing re-leveraging sector is US Utilities. Top attractive long issuer: Barclays (BACR Baa1/BBB+). Top attractive short issuer: Intel (INTC Baa2/BBB).
Earnings Summary (Week of August 8, 2025):
Of the 255 largest global corporate debt issuers, 73 are reducing leverage, while 89 are increasing net debt. Twenty-six issuers saw balance sheet changes. Sixteen issuers that were deleveraging last quarter are now adding net debt, while that were re-levering after Q1 are now deleveraging at Q2's end. 89 issuers remain to report for the June–July fiscal period.
Sectors Reducing Debt/Adding Cash: (1) TMT (A and BBB), (2) Non-Nordic European Banks, (3) Global Autos. (4) BBB energy.
Sectors Adding Most Net Debt: (1) A-rated Energy, (2) A-rated Consumer, (3) Big 6 Banks, (4) Aerospace and Defense (A and BBB).
Sectors Most Negatively Impacted by Tariffs: (1) Global Auto, (2) Global Consumer, (3) US Transports, (4) Healthcare, (5) Global Industrials.
Systematic Trading Model:
The model generates daily trading indicators for over 6,000 bonds. Currently, 761 bonds are within 20% of their 52-week tight or wide spread levels, 19% above historical averages.
Trading Allocation Strategy:
50% Long: Undervalued, deleveraging bonds.
30% Short: Overvalued bonds in re-levering sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance: Of 135 long/short trades in 2025 (marked via TRACE), 93% hit ±5 bp targets, averaging ±7.45 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 August 4, 2025, 20 long trade indicators reached "avoid" levels, shifting the long/short basket to a "more short" stance. There were strong inflows into US Bond ETFs and Mutual Funds last week for IG. HY inflows were mixed
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
US July services PMI at 50.1 vs 50.8 in June
Business activity fell to 52.6 vs 54.2
New orders fell to 50.3 vs 51.3
Employment fell to 46.4 vs 47.2
Prices paid rose to 69.9 vs 67.5
Sales at stores open at least a year, or same-store sales, rose 6.5% in the August. 2 week compared to a year earlier, -Johnson Redbook says.
Month-to-date sales through Aug. 2 rose 5.4%
July sales expected to be up 5.7% over the same month of the previous year
Tuesday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: -12% Below average
-G-255 Issuers: 96 of the top 100 traded issuer bonds accounted for 95% of top 100 issuer volume and 74% of total TRACE volume.
High-Yield (HY) Trading
-Volume: -7% below average
-G-255 Issuers: 14 of the top 25 traded bonds accounted for 52% of top 25 issuer volume and 47% of total TRACE volume.
Market Movement
U.S. CDX Index: +.5bp @ 52.5 bp
U.S. IG Cash Spreads: Ranged from (+1bp) wider to unchanged.
CDX HY Index: fell -.1 @ 108.9 (per Bloomberg)
HY Cash Bonds: BB TMT outperformed for a second day on Tuesday.
High-Yield Activity
- Dealers bought $1 bilf HY bonds Tuesday.
Most Bought HY Bonds
- Shelf Drilling HDS (B3/B-)
Most Sold HY Bonds
- Icahn Enterprises new issue (IEP B1/BB- attractive long)
Investment-Grade Activity
- Dealers bought $300 mm of IG bonds Tuesday.
Most Bought Sector: Single A Consumer
- Walmart (WMT, Aa2/AA attractive long)
- Anheuser Inbev (ABIBB, A3/A- attractive long)
Most Sold Sector: Technology
- Intel (INTC, Baa2/BBB attractive short)
- Qualcomm (QCOM A2/A attractive short)
Attractive Trading Sectors
Long Opportunities
Floating Rate Notes of de-levering issuers, BBB TMT, BBB Energy and Euro Yankee Banks Overall model indicators 179 bonds ($254.8 billion) are considered undervalued by the stochastic credit trading model with 77 attractive long trade indicators for the entire 6,000 bond universe.
Short Opportunities
1443 bonds ($1.15 trillion) are considered overvalued by the stochastic credit trading model with 684 attractive short trade indicators for the entire 6,000 bond universe.
U.S. Big 6 Banks (All Ratings): $721.8 billion in overvalued market capital across 289 bonds, with 91 short indicators.
Single A and BBB industrials $158.2 billion, in overvalued market capital across 136 bonds, with 84 short indicators.
Single A and BB energy $163.1 billion in overvalued market capital across 97 bonds, with 60 short indicators.
Single A Consumer $112.8 billion in overvalued market capital across 85 bonds, with 45 short indicators.
Issuer News
Disney (DIS A2/A attractive long). ESPN to Buy NFL Network, Other Assets in a Stock Swap
The National Football League will sell most of its media businesses to Walt Disney Co. in exchange for a 10% stake in the ESPN sports networks.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 46% 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. Given the number of issuers re-levering (140 of the world's largest 255 corporates at present) we would need to see the number of systematic short trade indicator reach 1,100 before the overall valuation indicator would reach "extremely overvalued"
2025 10 - year credit spreads: Are wider YoY and YTD.
UST 10Y rates are +34.2 bp higher YoY and -33.5bp YTD
Global Equity Correlation to IG Credit Spreads
U.S. IG credit spreads and U.S. equity prices were directionally correlated in Tuesday but only slightly. US credit was slightly worse in terms on investment grade credit spread and High Yield price. While US equity prices fell -.5% on average Tuesday. 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
New Supply, Bond Maturities, and Credit Fund Inflows for August
3 G-255 issuers sold 5 new bonds Tuesday bringing the two day totals 11 issuers selling 19 bonds with a total of $17. 575 billion of market capital. Daimler Truck (DTRGR) and Standard Chartered (STANLN) join Barclays (BACR Baa1/BBB+ attractive long) as just the 7th and 8th de-levering issuers to sell debt since reporting 2Q results.
While the Standard Chartered (STANLN) deal is one of the most attractive transactions to come to the USD market in the past 2 weeks according to our trading model, the issuer has the highest level of trading volatility amongst single A rated issuers.
10 of 60 new supply deals offered in the past 2 weeks have reached their model reached its avoid trading level on and 6 of those deals came from re-levering issuers Pepsico (PEP) and UBS (UBS).
Systematic Trading Model Indicators and Strategy
Model Output
684 Attractive short indicators . 13 more than Tuesday.
77 attractive long indicators: +5 from Tuesday
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Focus on deleveraging new issues with attractive valuations. Ideal maturity for new issue 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 70% long hurdle, maintain a 1:1 long-to-short ratio for additional positions.
Current Status of trading indicators below:
19 long trades reached their avoid trading levels in the past 30 days and were replaced by 7 new issue indicators
Systematic Credit Trading Strategy August 5, 2025
Closed Positions: The long/ short basket trading exited the Mercedez Benz (A3/A-) MBBGR FRN 4/1/27 Monday
Enter New Longs: Trading model indicators added as long trades Monday Barclays (Baa1/BBB+) BACR Float 11/11/29 and BACR 4.47 11/11/29 and Daimler Truck (A3/A-) DTRGR 10/12/32 Tuesday.
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 70% 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.
Basket Trade long/short Tuesday 75%
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 as long trades Tuesday: Daimler Truck (A3/A-) DTRGR 10/12/32 as an attractive new issue indicator
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – August 5, 2025)
Total Trades: 140 (1% of total trades).
Performance Summary:
Long Indicators: 102/109 reached avoid-trading levels, tightening by -9.41 bp.
Short Indicators: 27/31 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 7 widened by +.54 bp.
Remaining Shorts: 4 tightened by -15.62 bp.
Average Spread Movement: ±7.47 bp in the indicated direction.
Success Rate: 92% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (21 trading days) 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.