Systematic Credit and Equity G-255 Trading Indicators for July 9, 2025
Good Morning, Earnings season has begun, accompanied by increased G-255 supply and larger issue sizes. Honda Motor Co. (HNDA, A3/A-, Attractive Short) returned to the market for the second time in two weeks, issuing $3 billion in 3Y, 5Y, and 10Y bonds. Monday's issuance, totaling $2.25 billion across three tranches, priced at the American Finance level but is trading at or below new issue levels, impacted by financial sector supply and cautious warnings from Nissan (NSANY, Ba2/BB, Attractive Long) and Volkswagen (VW, A1/BBB+, Attractive Short) earlier
this week.
Meanwhile, the market is preparing for a $10 billion, seven-part USD offering from NTT, marking its third USD deal in six years to fund the acquisition of NTT Data. NTT is also issuing bonds in Europe concurrently.
Delta Air Lines (DAL, Baa2/BBB-, Attractive Long) reports earnings this morning, providing insight into global travel trends.
Our Systematic Credit Trading Model saw a reduction of over 100 short indicators between Monday and Tuesday, driven by spread widening in sectors that re-levered significantly in Q1 2025, including Single A healthcare, US Big Six Banks, and Single A/BBB industrials. This prompted a minor adjustment in our Systematic Credit IP indicators overnight, particularly affecting the attractiveness of certain floating-rate notes.
Last Thursday, we shared a chart that generated significant interest, rivaling our LQD model output. The chart analyzes the financial results of the 255 largest corporate debt issuers, formatted to assess income statement variance, balance sheet leverage, and cash flow/shareholder payments. These results are organized by sector, converted to USD, and parsed by credit rating, sector, and model long/short indicators.
Key findings as we enter earnings season:
Increased Debt Issuance: 134 major issuers added debt to their balance sheets in Q1 2025, the highest since 2018, creating "more debt to short" as earnings were reported.
Use of Debt Proceeds: Approximately 70% of net debt raised in Q1 2025 by the 232 reporting issuers funded share repurchases and dividend increases.
US vs. Non-US Issuers: US issuers are re-levering faster than non-US issuers.
Systematic Trading Model Insights and Trading Strategy (July 9, 2025)
The Systematic Trading Model uses data for over 6,000 bonds, with 754 currently within 20% of their 52-week tight or wide spread levels (36% above historical averages).
Current Trading Strategy
Allocation: 62% long, 18% short, 20% front-end allocation (75% in floating-rate notes maturing within 3 years, targeting undervalued, de-levering bonds).
Performance: Of 128 long/short trades (marked to market via TRACE) published in 2025, 89.7% achieved ±5 bp targets, averaging ±7.42 bp per trade.
Recent Activity: The model paused adding short positions on July 2, 2025, due to strong credit inflows for the weeks ending June 25 and July 2, 2025. Between June 30 and July 3, 2025, 9 long trade indicators reached "avoid" levels, shifting the long/short basket trade to a "more short" stance. We published 2 new attractive long new issue indicators in this morning's report.
Sector Trading Indicators for Tuesday
Long: Yankee Banks (particularly FRNs, Single A TMT.
Short: U.S. Big 6 Money Center Banks, Single A Healthcare, Single A and BBB Industrials (re-levering, tight spreads), BBB TMT with larger issuer tech firms re-levering.
The model avoids adding risk to any G-255 issuers scheduled to report results within 30 days, in compliance with global regulatory requirements to report "material events" within 30 days of a scheduled earnings release.
Model Characteristics
Systematic credit trading relies exclusively on publicly available information, with no subjective or human input incorporated into the model's intellectual property.
Tuesday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: 4.2% below average
-G-255 Issuers: 96 of the top 100 traded issuer bonds, accounting for 94% of top 100 issuer volume and 75% of total TRACE volume.
High-Yield (HY) Trading
-Volume: -8.4% above average
-G-255 Issuers: 15 of the top 25 traded bonds, accounting for 61% of top 25 issuer volume and 56% of total TRACE volume.
Market Movement
U.S. CDX Index: +.5bp wider Tuesday @ 51.5 bp
U.S. IG Cash Spreads: Were unchanged to +1 bp wider; No material outperforming sector, IG Healthcare and Energy underperformed
CDX HY Index: fell -.1 pt @ 107.50 (per Bloomberg)
HY Cash Bonds: BB Telecomm and BB Consumer bonds were top performers. BB Healthcare underperformed
High-Yield Activity
- Dealers bought $1 billion of HY bonds Tuesday.
Most Bought HY Bonds by End Users
- Albertsons (ACI Ba2/BB+ attractive long)
Most Sold HY Bonds by End Users
- Charter Communication / (CHTR Ba1/BBB- attractive long)
- Clear Channel Comm/ (CCO B2/B – attractive long)
Investment-Grade Activity
- Dealers net bought $400 million of IG bonds Tuesday.
Most Bought End-User Bonds
- American Honda Finance new issue (HNDA, A3/A- attractive short)
Most Sold Issuer Bonds
- Wells Fargo (WFC, A2/BBB+ attractive short)
Inflation, Economic Data, and Interest Rates
None on Monday
Attractive Trading Sectors
Long Opportunities
Floating Rate Notes of de-levering issuers (UK bank and Japanese Bank issuance most attractive) Overall model indicators 195 bonds ($286 billion) are considered undervalued by the stochastic credit trading model with 82 attractive long trade indicators for the entire 6,000 bond universe.
Short Opportunities
1372 bonds ($1.223 trillion) are considered overvalued by the stochastic credit trading model with 671 attractive short trade indicators for the entire 6,000 bond universe.
U.S. Big 6 Banks (All Ratings): $722 billion in overvalued market capital across 285 bonds, with 117 short indicators.
BBB TMT $214.9 billion in overvalued market capital across 128 bonds, with 54 short indicators.
Single A, BBB and Industrials $145 billion in overvalued market capital across 114 bonds, with 54 short indicators.
Single A Healthcare $1174.4 billion in overvalued market capital across 124 bonds, with 59 short indicators.
Issuer News
UniCredit (Baa1/BBB+ attractive long)/Banco BPM Acquisition: EU regulators will issue a letter to the Italian government questioning its authority to impose conditions on UniCredit's planned acquisition of Banco BPM. The European Commission asserts that, under EU merger rules, only Brussels has the legal power to set conditions for the deal. This preliminary decision could lead to an order for Italy to withdraw its imposed terms, facilitating the takeover's completion.
BBVA SA (A3/A attractive long)/Banco Sabadell SA Takeover: BBVA SA stated that the Spanish government's intervention in its proposed acquisition of Banco Sabadell SA will delay, but not reduce, the deal's projected cost savings. BBVA noted that Madrid's actions "will delay the realization of some estimated synergies but will not lower the overall synergies previously estimated."
Apple (AAPL Aaa/AA+ attractive long) Leadership Transition: Jeff Williams will transition the Chief Operating Officer role to Sabih Khan later this month and retire from Apple later in 2025. Until his departure, Williams will continue overseeing the company's design team and health initiatives, after which the design group will report directly to CEO Tim Cook.
Starbucks (SBUX Baa1/BBB+ attractive short) China Business: Starbucks Corp. has received proposals from investors interested in its China operations, with most seeking a controlling stake, according to sources familiar with the matter. While Starbucks has stated it prefers to sell a minority stake to a partner, it may consider selling a larger share depending on valuation and other factors. The company emphasized its "significant long-term potential in China" and intends to "retain a meaningful stake in the business," per Bloomberg.
U.S. IG Credit Valuation and Spreads
Spread Recovery: U.S. credit spreads have recovered 60% of the widening observed from November 12, 2024, to April 10, 2025. Post last week's rally US credit spreads are now materially tighter over the past 10 trading days.
Valuation: U.S. credit remains overvalued based on output from our credit trading model.
Global Equity Correlation to IG Credit Spreads
Credit spreads and prices again remained directionally tied to each other. While US credit spreads were slightly wider again on Tuesday, the S&P 500 dropped another -.07% and the US Dow Jones fell -.37%. This movement somewhat mitigates last week's movement where both credit and US equities were better, but equities outperformed.
New Supply, Bond Maturities, and Credit Fund Inflows for July
Following Monday's 4 G – 255 issuer 9 tranche new issue trades, just one new deal on Tuesday prior to the large NTT trade to be priced on Wednesday that was announced Monday.
Honda sold American Finance bonds in above normal size on Tuesday and as previously noted, tight credit spreads have spurred both increased supply and demand for corporate credit. This comes just two weeks of Honda sold $2 billion of Motor Co level bonds which traded last night +4bp wide of new issue spread for the new HNDA 5.337 07/08/35.
The Honda Motor Co deal has been one of the poorest performing new bonds in the past 6 weeks and there are a myriad of reasons, the largest of which from a quantitative perspective, Honda is adding net debt as of March 31, 2025.
Additionally, BMW (BMW) and BBVA (BBVASM) sold bonds in EUR yesterday.
Systematic Trading Model Indicators and Strategy
Model Output
672 attractive short indicators: 102 fewer than Tuesday.
82 attractive long indicators: 21 higher than Tuesday and the largest number of attractive long model trading indicators since May 27.
Weekly Trading Strategy (ending July 10) 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.
Ideal long maturity is 7Y. Similarly least attractive short maturity is 7Y.
Systematic Portfolio Trading Model Indicators: Replace Systematic attractive longs that have reached their avoid trading level. Once the systematic 80% long hurdle is met, then 1 short for each 1 long position – Note number of long positions has declined by (-8) since since last Wednesday. 10 long trades have reached their avoid trading levels, and we have published to new Broadcom new issue long trading indicators.
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:
Mizuho (A1/A) Mizuho 4.711 07/8/31 reached its avoid trading level on Monday
ING (Baa1/A-) INTNED Float reached its avoid trading level on Tuesday
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – July 7, 2025)
Total Trades: 130 (1% of total indicators).
Performance Summary:
Long Indicators: 88/99 reached avoid-trading levels, tightening by -9.59 bp.
Short Indicators: 27/31 reached avoid-trading levels, widening by +5.49 bp.
Remaining Longs: 11 tightened by -3.18 bp.
Remaining Shorts: 4 tightened by -14 bp.
Average Spread Movement: ±7.42 bp in the indicated direction.
Success Rate: 88.5% of indicators reached avoid-trading levels (1.5% below 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 and distributors 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.