Systematic Credit and Equity G-255 Trading Indicators for July 3, 2025
Credit continued its slower than Equity march tighter as the S&P 500 hit a record high on Wednesday and US credit spreads rallied for a third day in 5 and directionally correlated to US equity price movement for a 35th trading day in 42. We head into Thursday jobs report that will shape trading in the rest of world Friday.
Heading into the holiday weekend The standalone model continues it's indicators long positions in Yankee Banks and Single A TMT, while shorting U.S. Big Six Banks, Single A Healthcare, and Single A Industrials. Strong inflows and historical July 4 trends supported a bullish near-Term outlook, but caution is advised for re-levering issuers as earnings season approaches.
First Quarter Final Model G-255 Trading / Research Universe Balance Sheet Output:
Systematic Trading Model Insights and Trading Strategy Thursday:
The model tracks over 6,000 bonds, with 812 near 52-week tight or wide spread levels (47% above historical averages).
Current Trading Strategy:
62% long, 18% short, 20% front-end allocation (67% in floating-rate notes maturing within 3 years, targeting undervalued, de-levering bonds).
Performance: Of 127 long/short trades (marked to market via TRACE), 80% achieved ±5 bp targets, averaging ±7.21 bp per trade.
Recent Activity: The model paused adding short positions on July 2, 2025, due to strong credit inflows for the week ending June 25, 2025. Nine long indicators hit "avoid" points on June 30 and July 1, 2025. This resulted in the Systematic long/short basket trade becoming "more short."
Despite a 35-year directional correlation between U.S. equities and credit risk, 2025 shows wider U.S. credit spreads (10-year UST rates down 31 bp YTD) while the S&P 500 is up over 5%. As earnings season approaches (starting July 15, 2025), the model provides daily insights into credit spread movements and trading opportunities across G-255 issuers.
Our trading model indicators projected a strong July 1-3, 2025, market performance, driven by credit inflows and historical tightening trends (credit spreads tightened in 20 of the past 25 July 4 weeks). As of June 26, 2025, model indicators showed fair valuation, supported by significant sideline cash fueling risk-on buying. We will update on Monday.
Sector Trading Indicators For Thursday:
Long: Yankee Banks, Single A TMT (strong balance sheets, low credit risk).
Short: U.S. Money Big 6 Banks, Single A Healthcare, Single A and BBB Industrials (re-levering, tight spreads).
Wednesday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: 5% above average
-G-255 Issuers: 96 of the top 100 traded issuer bonds, accounting for 97% of top 100 issuer volume and 77% of total TRACE volume.
High-Yield (HY) Trading
-Volume: +4.5% above average on Wednesday
-G-255 Issuers: 16 of the top 25 traded bonds, accounting for 67% of top 25 issuer volume and 55% of total TRACE volume.
Market Movement
U.S. CDX Index: Unchanged Wednesday @ 50.5 bp
U.S. IG Cash Spreads: Ranged from unchanged bp to 46 bp tighter; US BBB Fins and BBB Energy outperformed.
CDX HY Index: unchanged @ 107.7 (per Bloomberg)
HY Cash Bonds: BB Energy and Auto bonds were top performers.
High-Yield Activity
- Dealers neither net bought or sold HY bonds Wednesday.
Most Bought HY Bonds by End Users
- Whirlpool (WHR, Ba1/BB+ attractive long)
- Banco Santander (SANTAN Ba1/BBB- attractive short)
Most Sold HY Bonds by End Users
- Centene (CNC, Ba1/BBB- attractive short)
- Bombardier (BBFBCN B1/BB- attractive long)
Investment-Grade Activity
- Dealers net sold $1.5 billion of IG bonds Wednesday.
Most Bought End-User Bonds
- Morgan Stanley (MS, A1/A- attractive short)
- ATT (T, Baa2/BBB attractive long)
Most Sold Issuer Bonds
- Sumitomo Financial New Issue (SUMIBK, A1/A- attractive long)
Inflation, Economic Data, and Interest Rates
Challenger, Gray & Christmas reported 47,999 job cut announcements in June; 744,308 year-to-date.
Job cuts announced in the East 16,807; Midwest 12,876; West 13,989; South 4,327 Challenger says YTD job cuts most since 1st half of 2020
ADP level fell 33k (estimate +98k) in June versus revised +29k in May, according to ADP Research Institute and the Stanford Digital Economy Lab
Challenger says YTD job cuts most since 1st half of 2020
ISM prices paid rose to 69.7, but are still below 2018 levels.
Attractive Trading Sectors
Long Opportunities
None. 189 bonds ($265.7 billion) are considered undervalued by the stochastic credit trading model with 76 attractive long trade indicators for the entire 6,000 bond universe.
Short Opportunities
U.S. Big 6 Banks (All Ratings): $727.8 billion in overvalued market capital across 287 bonds, with 161 short indicators.
BBB TMT $215.5 billion in overvalued market capital across 127 bonds, with 67 short indicators.
Single A, BBB and Industrials $133 billion in overvalued market capital across 106 bonds, with 65 short indicators.
Single A Healthcare $173.3 billion in overvalued market capital across 119 bonds, with 46 short indicators.
Issuer News
OpenAI has agreed to rent 4.5 gigawatts of data center power in the US from Oracle (ORCL BBB2/BBB attractive short), which could power millions of American homes.
Microsoft (MSFT Aaa/AAA) is eliminating 9,000 jobs or 4% of Microsoft's 228,000 global workforce as the company expands its AI response unit.
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. Post Tuesday's rally US credit spreads are now tighter over the past 7 trading days.
Valuation: U.S. credit is now overvalued.
Global Equity Correlation to IG Credit Spreads
Credit spreads and prices again advanced in the same direction as the S&P 500 was flat and the US Dow Jones Industrial average +91% higher on Tuesday, credit has now moved in the same direction as equity prices in 47 of the past 53 trading days.
New Supply, Bond Maturities, and Credit Fund Inflows for July
Net inflows to ETFs totaled $7.25b in the week ended July 1, 2025, including the effect of leveraged funds, compared with $7.79b the prior week
Corporate bond ETFs expanded by $258.4m to $3.65b
Investment-grade ETFs dropped by $308m to $3.54b, and high-yield ETFs dropped by $460.9m to $1.13b
Broad bond-market ETFs expanded by $1.5b to $3.36b
Net inflows totaled $179.7b year-to-date
IShares iBoxx $ Investment Grade Corporate Bond ETF had the biggest inflow, of $1.5b
No new G-255 USD supply while Softbank (SFTBK, BB+,BBB-), Bank of Montreal (BMO, A2/A) sold Euro bonds on Wednesday. BMW International (BMW A3/A-), and Carnival (CCL Ba3/BB+) both sold GBP bonds on Tuesday.
Systematic Trading Model Indicators and Strategy
Model Output
737 attractive short indicators: 57 more than Wednesday, marking the highest number of short trades since November 21, 2024.
76 attractive long indicators: Similar to Wednesday.
Weekly Trading Strategy (ending July 3) Model output changes slightly until Thursday's fund flow data.
Prioritize long positions in deleveraging new issues with attractive valuations.
Add shorts of re-levering issuers with the deepest discount from their model avoid point.
Systematic Portfolio Trading Model Indicators: Add 1 short for each 1 long position – Note number of long positions has declined by (-8) since last Thursday.
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.
Most Recent Systematic long/short trades:
Union Pacific (UNP, A3/A-): UNP 5.1% 2/20/35 are two of 5 new issue indicators published before February 23, 2025, that has not reached its avoid trading level.
TD Bank (A3/A-): TD 4.574% 6/2/28 reached reached its avoid trading level Wednesday.
Caixa Bank (Baa2/BBB) CABSKM 4.885 7/3/31 reached its avoid trading level on Wednesday
Citigroup Subordinated, (Baa3/BBB) C 6.02 1/24/36 reached its avoid trading level on Wednesday.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – July 2, 2025)
Total Trades: 128 (1% of total indicators).
Performance Summary:
Long Indicators: 81/97 reached avoid-trading levels, tightening by -9.73 bp.
Short Indicators: 27/31 reached avoid-trading levels, widening by +5.49 bp.
Remaining Longs: 16 tightened by -2.31 bp.
Remaining Shorts: 4 tightened by -11.5 bp.
Average Spread Movement: ±7.16bp in the indicated direction.
Success Rate: 84.3% of indicators reached avoid-trading levels (5.7% below normal).
Average trade holding period: (24 trading days) + 21% 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.