Systematic Credit and Equity G-250 Trading Indicators for June 25, 2025
Market Summary and Historic Balance
Tuesdays credit trading was finally dominated by… well, credit trading. Forget the headlines and "implications" what is becoming more evident is that the economic impact of trade tariffs and constant rhetoric is taking its toll on corporate earnings outlooks. On Tuesday, it "mattered not" as we saw almost $15 billion of total corp supply (half coming from G-255 issuers) and buy – side accounts and dealers scrambling to figure to put the new bonds particularly going into month end.
We also saw headlines from Micheal's stores (equity is private and MIK bonds are CCC rated), Carnival Cruise Lines (CCL B1/BB attractive long and Federal Express (FDX, Baa2/BBB+ attractive short) that were mixed. From a credit trading perspective – we have yet to see issuers reducing debt, which the key ingredient to moving and issuers credit spread tighter. From a revenue perspective – we're not as certain about cruise line revenue growth demonstrating consumer strength. Tuesday's consumer confidence numbers, with the Conference Board's June reading of 93 against a 100-month moving average of 111, appear to contradict this observation.
Fedex confirmed that doing business outside the US has become treacherous and there is no actual material change in the global economy's disdain for the US whitehouse and non – US governments and private sector participants desire to find alternatives to US corporates.
The US equity market shows no sign of weakness regardless of the US economic or reported corporate earnings data. Over $4.6 trillion in cash remains on the sidelines, and Carnival's press release and conference call (with strong operating numbers) exemplifies the buzzwords driving the "Trump trade." Terms like "ahead of analysts' expectations" and "adjusted" appeared 50 times in the release and presentation, contributing to a 10% rise in CCL equity on Tuesday (see page 6).
Federal Reserve Member Headlines:
Federal Reserve Chair Jerome Powell reiterated that policymakers should not rush to adjust policy, despite President Donald Trump's demands and some Fed Governors' openness to near-term rate cuts.
Powell stressed the need for clarity on Trump's economic policies, particularly tariffs, which could increase prices and slow economic activity.
On Monday, Fed Governor Michelle Bowman stated, "Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting to bring it closer to its neutral setting and to sustain a healthy labor market." As the financial press pushes a July rate cut narrative, the Fed Chair will likely counter such speculation swiftly.
Trading Strategy and Balance Sheet Analysis
Q1 balance sheet analysis of global banks (U.S. Big 6, regional, Canadian, European, French, UK, and single-A/BBB-rated TMT) supports our trading Indicators. Japanese banks show particularly strong balance sheets. Trading model outputs continue to indicate:
Long Yankee Banks / Short U.S. Money Center Banks
Long single-A TMT / Short single-A Healthcare
We review sector operating metrics and balance sheets on non-earnings days. Of 123 Systematic long/short trade (marked to market by TRACE prints), 78% achieved their ±6.89 basis point target (page 4).
Portfolio Trading Model Indicators
Of over 6,000 bonds tracked, 552 trade near 52-week tight or wide spread levels, roughly average. The systematic trading model avoided adding short positions this morning, as two systematic new-issue long trades in our long/short bucket (listed on page 4) reached their avoid-trading levels on Tuesday. With two fewer long trades in the systematic trade, the model adjusted to:
62% long / 18% short strategy
20% front-end allocation, with 67% in floating-rate notes (FRNs) maturing within three years, targeting undervalued, deleveraging bonds
Attractive short Indicators are above 2-year averages.
Key Trading Issues Tuesday
5 issues and 11 tranches and $7.3 billion of new G-250 supply while non – G250 issuers sold $3.5 billion of debt. Dealers were hit on over $3.5 billion of HY and IG debt s headlines for certain comp store sales, WBD bond tender prices and the increase in new supply led to higher trading volumes and "space making" for new supply.
Tuesday's U.S. Investment-Grade and High-Yield Credit Trading
Investment-Grade (IG) Trading
- Volume: 2% below average.
- G-250 Issuers: Represented 96 of the top 100 traded issuer bonds, accounting for 94% of top 100 issuer volume and 76% of total TRACE volume.
High-Yield (HY) Trading
- Volume: 9% below average.
- G-250 Issuers: Represented 15 of the top 25 traded bonds, accounting for 64% of top 25 issuer volume and 53% of total TRACE volume.
Market Movement
- U.S. CDX Index: tightened (-1.8bp) Tuesday @ 53 bp.
- U.S. IG Cash Spreads: were (-2 to -4bp) tighter with Autos and US Banks outperforming and Energy bonds underperforming.
- CDX HY Index: Rose by 0.3pt 109.5, per Bloomberg).
- HY Cash Bonds: BB Healthcare were the best performing bonds for a third day. BB energy bonds underperformed for a second straight day.
High-Yield Activity
- Dealers bought $900 million of HY bonds on Tuesday.
Most Bought HY Bonds by End Users
- Michaels Company (MIK, Caa2/CCC) end users bought $80mm bonds according to Trace post improved second quarter sales guidance.
Most Sold HY Bonds by End Users
- Crescent Energy Finance (CRGYFN, B1/B-).
Investment-Grade Activity
- Dealers net bought $2 billion+ of IG bonds on Monday and are at $4+ billion on the week.
Most Bought End-User Bonds
- Hyundai US Capital (HYNMTR, A3/A- attractive long)
Most Sold Issuer Bonds
- New issue JBS Foods (JBSSBZ, Baa3/BBB-)
Inflation, Economic Data, and Interest Rates
U.S. Consumer Confidence: Unexpectedly fell in June by 5.4 points to 93, driven by ongoing concerns about the economic and job market impacts of higher U.S. import duties.
Consumer expectations for the next six months declined by 4.6 points.
The gauge of present conditions fell - 6.4 points, indicating cautious consumer spending behavior.
Same-Store Sales: According to Johnson Redbook, sales at stores open at least a year rose 4.5% for the week ending June 21 compared to 2024.
Attractive Trading Sectors
Long Opportunities
-None identified. However, 207 bonds ($292.5 billion) are undervalued, with 65 attractive long indicators by the trading model. Single A TMT is the most undervalued trading sector from a long perspective according to the trading model.
Short Opportunities
U.S. Big 6 Banks (All Ratings): $673.1 billion in overvalued market capital across 278 bonds, with 89 short indicators.
BBB TMT: $216 billion in overvalued market capital across 125 bonds, with 28 short indicators.
Single A Healthcare: $130.3 billion in overvalued market capital across 91 bonds, with 25 short indicators.
Issuer News
Stabucks (SBUX, Baa2/BBB, attractive short): Starbucks refuted a Caixin Global report suggesting a potential full sale of its China business.
BBVA (BBVASM, A2/A-, attractive long): The Spanish government has set conditions on BBVA's €14 billion bid for Banco Sabadell, mandating that the two banks maintain separate operations for at least three years, potentially extending to five years.
Warner Bros. Discovery (WBD, Ba2/BB, attractive long): Warner Bros. Discovery, Inc. announced the pricing terms for tender offers by its subsidiaries, Discovery Communications, LLC (DCL), WarnerMedia Holdings, Inc. (WMH), Warner Media, LLC (WML), and Historic TW, Inc. (TWI), to repurchase substantially all of their outstanding notes and debentures. Tender prices range from 65 cents to par on the dollar, with most prices exceeding 90 cents on the dollar. WBD bonds are now trading at high-yield (HY) price levels.
U.S. IG Credit Valuation and Spreads
Spread Recovery: U.S. credit spreads have recovered slightly slightly less than 50% of the widening observed from November 12, 2024, to April 10, 2025. However, US credit spreads were wider last week.
Valuation: U.S. credit is currently fairly valued but leans closer to the overvalued level.
Global Equity Correlation to IG Credit Spreads
Back to the 85% confidence level of correlation between US equity price and US credit spread movement on Tuesday. US equities now re – establishing better risk/reward returns than credit owing to increased cash returns on US equities financed by the corporate debt market.
New Supply, Bond Maturities, and Credit Fund Inflows for June
Yesterday was a highly active day in the USD syndicate market for major global debt issuers. Of the 13 trades, only the Nomura (Ba3/BB) 7% Perpetual and Imperial Brands (IMBLN, Baa2/BBB) 10-year fixed were not priced with upside, according to our systematic trading model. The remaining 11 trades showed favorable pricing.
The most compelling and attractively priced trade was the new Toyota Motor Corp (TOYOTA, A1/A+) issuance. All three bonds were priced attractively, though their trading size ($500 million each) excludes them from our basket trade. Toyota Motor Credit is a rare issuer in the market.
Other notable issuers included TotalEnergies (TTEFP, Aa3/A+), Ford Motor Credit (F, Ba1/BBB-), and Banco Santander (SANTAN, Ba1/BBB- Perpetual rating), all of which sold bonds in Europe on Tuesday.
Systematic Trading Model Indicators and Strategy
Model Output
474 attractive short Indicators: 79 more than Tuesday with 60% of the increase in Single A rated Consumer, Industrial and Big 6 banks. Still nowhere near full "overvalued" territory. "When will we know?" When there are significant Auto attractive short model outputs. Not even in that are code as of this AM.
65 attractive long indicators: A drop of 35 attractive long indicators from Monday but flat with Tuesday/ two thirds of the decline in long trading opportunities coming from BBB Energy and BBB Healthcare.
Weekly Trading Strategy (Ending June 27) Model output changes slightly until Thursday's fund flow data.
Prioritize long positions in deleveraging new issues with attractive valuations.
Add shorts of relevering issuers with the deepest discount from their model avoid point.
Systematic Portfolio Trading Model Indicators: Add 5 short positions for each 4 additional long positions or do not replace 1 of every 5 long positions that reach their avoid trading point.
Systematic Credit 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.
Most Recent Systematic long/short trades
Union Pacific (UNP, A3/A-): UNP 5.60% 12/01/2054 and UNP 5.1% 2/20/35 are two of 10 new issue indicators published before February 23, 2025, that has not reached its avoid trading level.
Recent (Hyundai US Finance A3/A) HYNMTR 5.1 06/24/30 new issue reached its avoid trading level on Tuesday.
We published the systematic model trade of new BNP (BNP Ba1/BBB-) $1.5bil variable AT1 @ new issue price with -8bp of tightening or .5 pt of price appreciation in the Trade on Tuesday. The bond reached its avoid trading level on Tuesday.
Bucket Trade Performance Report (January 4, 2025 – June 24, 2025)
Total Trades: 123 (1% of total opportunities).
Performance Summary:
Long Indicators: 70/93 reached avoid-trading levels, tightening by -9.95 bp.
Short Indicators: 26/30 reached avoid-trading levels, widening by +5.24 bp.
Remaining Longs: 23 tightened by -0.67 bp.
Remaining Shorts: 4 tightened by -6.75 bp.
Average Spread Movement: ±6.89 bp in the indicated direction.
Success Rate: 78% of indicators reached avoid-trading levels (12% below normal).
Notes:
Initial long trades 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 trades hit avoid-trading levels, contributing -1.46 bp to overall spread tightening for the 70 long trades.
2 short trades hit avoid trading level (+5 from model indicated level)
Overall performance improved from ±4.91 bp to ±6.89 bp across 123 systematic long/short trades.
Earnings Season Insights
FedEx (FDX, Baa2/BBB, attractive short)
Results:
FedEx (FDX) reported 4Q 2025 results, showing near-zero revenue growth and 7% earnings growth, consistent with most non-tech, non-healthcare, and non-utility sectors. Cash flow from operations improved marginally, but the outlook for non-U.S. operations remains pressured by trade tariffs. Like many large global borrowers, FedEx is withholding FY 2026 guidance.
Financing:
FedEx generated approximately $900 million in free cash flow after capital expenditures in Q4 2025, returning over $850 million to shareholders. The company's balance sheet continues to add net debt each quarter. Net debt has increased by 35% over the past three years, while revenue has declined over the past 12 quarters.
Trading Strategy:
Of the 48 USD-denominated FedEx bonds in circulation, few have sufficient liquidity to generate reliable signals in our trading model. The FDX 5.25% 05/15/2027 is considered attractive by the model but is only 3 basis points from being classified as an attractive short due to credit spread dynamics. FDX equity is not deemed an attractive long at the previous night's closing price.
Carnival Corporation (CCL, B1/BB+, attractive long)
Results:
Carnival Corporation (CCL) reported record Q2 2025 results, with significant growth in revenue, gross margin, operating cash flow, and net profit. The cruise industry's operating leverage is notable, with an 11.2% year-over-year revenue increase driving a 75% rise in operating profit. The company optimizes results by leveraging its fleet with varied pricing and destination options, which remain more cost-effective than airfare, hotel, rental car, and food combined. However, we remain cautious about interpreting cruise industry growth as a definitive signal of consumer strength.
Financing:
Carnival did not provide a cash flow statement in today's report. The press release and presentation note 25 times across six categories that CCL "exceeded analysts' expectations." Debt levels are stable quarter-over-quarter, with cash on hand up by $950 million. The company is cash flow positive, and CCL net debt is gradually decreasing.
Trading Strategy:
None of CCL's 8 liquid USD-denominated bonds are classified as "undervalued" by our trading model. CCL equity, which pays no dividend and closed last night within 10% of its 52-week high, is considered overvalued but viewed as an attractive long-term investment by our model at lower price levels.
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.