G-250 USD New Issue Supply and Trade Indicators for May 7, 2025 and Trading Model Summary
Corporate Bond Trading Amid Trade Rhetoric
Good Morning - Yesterday, we reviewed headlines on investment decisions driven by Donald Trump's trade negotiation statements. With most trading now flowing through index options and ETFs, equity price movements—and correlated US investment-grade (IG) credit spreads—now often hinge on vague tariff rhetoric, a dynamic hard to reconcile. This trend also underscores the recent decline in corporate bond trading volumes, as reported on NASD TRACE.
Our credit systematic trading approach contrasts this paradigm. Notably, five of the world's largest corporate bond issuers reporting 1Q earnings yesterday, are adding net debt to fund dividends and share buybacks, yet the reports had no impact on yesterday's credit spread movement. We have noted several times this earnings season this trading anomaly that can last as long as a week. Our stochastic systematic corporate model, which uses only publicly available data to create recommendations remains unmoved by the headlines. How does it view Trump's global trade comments or Chairman Powell's remarks post today's Federal Reserve meeting? It doesn't. The model identifies $998 billion in bonds from 60 de-levering issuers as undervalued, poised to tighten spreads over the next 43 trading days. Conversely, of $656 billion in bonds from 78 re-levering issuers, ($746 billion) are overvalued and $96 billion are attractive as short trades.
Trump Tariff Talk and Corporate Earnings
US 1Q 2025 corporate earnings growth, pre-adjustments, is below 5% year-over-year. Is this due to trade talks? It varies by issuer. Visa (V) reports no impact, while Ford (F) cites trade talks, though its volatile auto operating profitability owes more to operating leverage and product differentiation than tariffs.
Yet recently, risk is priced at the margin based on how financial news outlets amplify Trump's comments, not actual earnings. Will this stop? Only if investors face real losses. With corporates borrowing to pay dividends and $6.7 trillion sitting in US money market funds as of last week, that cash pile isn't shrinking soon.
How the Model Trades Headlines
Unlike equities, bonds have finite returns—they mature at par or default. The 6,200 USD-denominated bonds from the top 250 global corporate borrowers have a mere 0.05% default risk, with no major IG issuer defaults since 2008 (only 12 in 30 years). IG credit risk is thus perpetually mispriced due to equity price and 10-year credit spread correlations and "headlines."
With ultimate corporate bond outcomes nearly certain, our model targets volatility risk, acting as a buyer, not a seller. It shorts overvalued bonds (unlikely to tighten) from issuers adding tradable debt and goes long on undervalued bonds (likely to tighten) from issuers reducing tradable debt. Balance sheet leverage determination and credit spread valuations? That's part of our "13 secret herbs and spices" updated nightly. Does the model parse headlines? No, but it capitalizes on the volatility they create.
Earnings Season
Thus far, 150 of the 250 largest issuers of corporate debt have reported results for the period ended 3/31/25. 22 issuers will not report March results as they only report balance sheets for June and December.
So far, we have 133 of the 150 issuer data written up (we don't add the reported data to our model unless we have published the result first). The integrity of the output is paramount. We have only published revenue growth and shareholder payouts of non-financial issuers thus far, owing to the lack of disclosure of cash flow in so many bank earnings announcements.
For the issuers that we have balance sheet data on, we see $10.81 trillion of debt, with net debt (total debt less cash and ST investments) $266.3 billion higher than in 4Q 2024 and $337 bil higher YoY. Thus far net debt on the 133 issuer balance sheets that are in the model has grown 2.58% QoQ and 3.2% YoY.
Non – financial net debt is growing growing 1.12% QoQ and 1.71% YoY.
At the same time, global non-financial issuers are paying out capital to shareholders at a rate 3.5x faster than their year-over-year revenue growth.
Tuesday's US IG Credit Trading:
Another day with several new corporate bond deals. Very few of the deals were priced attractively and away from financial issuers, transaction size will again reduce follow on trading volumes going forward. he day was dominated by relatively small deals for 5 G – 250 issuers with dealers buying about $1.6 billion of IG paper, and the new supply accounting for 22% of dealer net buying. Both cash and the IG CDX were wider Tuesday but by less than (+1bp) more or less reversing Monday's move slightly tighter. We saw net buying of Big 6 bank bonds, given the number of large cap financial deals on Tuesday bank bonds underperformed and energy and consumer issues (the sectors adding the most financial leverage in the first quarter) were the best performing sectors.
Volumes were (-10%) below average and (-15% lower this week) with just 6 of the top 15 traders new bonds issued Monday or Tuesday. Dealers bought almost $5 billion of IG credit on Tuesday with 60% of the buying coming from 3 sectors (Banks, Consumer Discretionary (Autos) and Healthcare.
How to trade Earnings Season
The more things change, the more they stay the same.
Long Positions: Attractive bonds (or new supply) from issuers that have already reported results. Those would include the UK bank and Broadcom (AVGO) indicators Monday, as well as the Apple (AAPL) and Standard Chartered (STANLN 5.244 05/13/31)
Short Positions: Issuer bonds trading within 20% of their 52-week tight spread, where the underlying company is releveraging its balance sheet.
The trading model prefers non-US banks as its top sectors and bonds for attractive long indicators. Those issuers as a group have $ 143 billion more cash than debt.
Westpac reported last night. The three Japanese majors and Australian banks report next week. Canadian banks shortly after that.
The trading model prefers non-US banks as its top sectors and bonds for attractive long indicators. Those issuers as a group have $ 143 billion more cash than debt.
Westpac reported last night. The three Japanese majors and Australian banks report next week. Canadian banks shortly after that.
Issuer News Tuesday
Barclays (BACR): A group of 31 shareholders in Barclays Plc will call on the bank's board to set an explicit funding target for the renewable energy sector at the annual general meeting on Wednesday.
Standard Chartered (STANLN): Investors will also pressure Standard Chartered Plc to increase capital allocations to clean energy in emerging economies at its AGM on Thursday.
HSBC (HSBC): shareholders have urged the bank to reaffirm its commitment to net zero.
Inflation Readings and Government Bonds
With the US Fed meeting today, we will allow Chairman Powell to provide the "official view" on the subject.
U.S. IG Credit Valuation
US investment-grade (IG) credit is now on the line of "most attractive" and "attractive" for long credit indicators. This is the 35th consecutive trading day. See details in the Model output section below.
According to Bloomberg, overall US IG credit spreads have tightened by (-12 to -14bp) since our trading model hit its largest "long only" attractive reading in 5 years.
The model also indicates that we would need (-6 to -10bp) of additional index credit spread tightening prior to the "Long Only" output changing.
Finally, we note that overall IG credit spreads widened by (+64 to +70bp) from 11/06/24 (when our trading model hit its largest attractive short rec ratio) to 4/10/25 when our trading model hit its largest attractive long rec ratio.
Global Equity Correlation to IG Credit Spreads
We saw similar correlation between USD 10Y credit spreads and equity index movement Tuesday, with US equities declining slightly and US corporate credit modestly wider. As noted above, the risk to US credit spreads at present is twofold:
(1) Reported earnings for the remainder of the world's non-financial issuers. Historically, the later in the cycle an issuer reports, the less optimistic the result and outlook.
(2) As we have written numerous times, 1Q operating cash flow is not covering dividend payments and share repurchases of the world's largest borrowers.
New Supply / Bond Maturities / Credit Fund outflows for May
We again saw smaller than historic average deal size from 5 G – 250 issuers and was fairly priced. $14.25 billion was sold with 4 of the transactions coming from major global financial issuers.
Of the the 12 new deals brought on Tuesday, our trading model saw just three (BAC Float 05/09/29, STANLN 5.244 05/13/31 and PNC 4.899 05/13/31) as having -5 bp of credit spread tightening from issue spread within the next 15 trading days.
Of the the 12 new deals brought on Tuesday, our trading model saw just three (BAC Float 05/09/29, STANLN 5.244 05/13/31 and PNC 4.899 05/13/31) as having -5 bp of credit spread tightening from issue spread within the next 15 trading days.
Systematic Trading Model Indicators – Tuesday
We saw US IG spreads relatively unchanged Tuesday but 5 more issuers reported more net balance sheet debt. Our trading model picked up another 7 attractive short trading indicators while losing 8 attractive long indicators. This is the highest number of short trading indicators in a month.
The model maintains its "long-only" stance across its 6,200-bond, 250-issuer USD large-cap universe for the 35th consecutive trading day. Attractive short indicators remain near five-year lows, with over 70% of model indicators classified as attractive long.
Attractive Trading Sectors
Attractive Long Trading Sectors: BBB-rated TMT, UK banks, French banks, BBB Energy, US Regional, and Canadian banks are the most attractive long trading sectors this morning within the 6,200 USD bond universe analyzed daily by our model.
Attractive Short Trading Sectors: None. The consumer sector is releveraging. Consumer credit spreads are (+10bp) wide of attractive short trading levels. Single A Industrials (-12bp) tighter, US Big 6 banks are also attractive short trading recommendations (-6 to -8bp) tighter from current trading levels.
Systematic Credit Indicators
Our systematic strategies employ defined trading processes and portfolio construction parameters. This clarity differentiates them from discretionary approaches, offering replicable and auditable methods. We rely only on stochastic trading algorithms to identify opportunities, backtested on historical data to validate strategy performance. We target ±5 basis points of credit spread movement in minimal trading days, balancing return maximization with volatility risk.
Most Recent Model Trading Indicators
This morning, the trading model adds Bank of America (A1/A-) BAC Float 05/09/29 and Standard Chartered (A3/BBB+) STANLN 5.244 05/13/31 new supply.
BNP (BNP Baa1/A-) BNP Float 05/09/29 and BNP 5.085 05/09/31 both reached their avoid trading level on Tuesday.
Monday Sample Trading Indicators with Credit Spread Movement
Since February 24, we've published 38 secondary and new-issue trading indicators from our model:
• 15 indicators have reached their avoid-trading level and tightened by (-7.9bp) on average
• The remaining 23 indicators have widened by an average of +2.1 bp.
• Across all 38 indicators, credit spreads are (-2.9bp) tighter.
Prior long/short trading Indicators
Of the 46 new-issue and secondary trading indicators published (22 long and 24 short) that reached their avoid trading level, the average credit spread movement was (+/-5.6bp).
Of the 10 long indicators issued before February 22 that haven't yet hit the avoid-trading threshold:
• Four are BBB-rated and have widened by +28.7 bp on average since being indicated.
• They currently trade at 153.7 bp over the UST curve, with an 8.2-year duration.
• Our model projects an average spread tightening of -33.7 bp remaining.
• Six are single-A rated and have widened by +20.3 bp since being indicated.
• They now trade at 112.7 bp over the UST curve, with a 10.7-year duration.
• The trading model indicates an average spread tightening of -25.2 bp remains.
Earnings results later Today
Earnings yesterday and last week
Marathon Petroleum (MPC, Baa3 / BBB)
• Marathon Petroleum reported a 4th out of 6 quarter of declining revenue and operating profit. Company also reported slightly negative operating cashflow for 1Q 2025. Company
• Financial Position: Similar to other issuers in the Energy sector MPC, is borrowing cash to pay shareholders. Net debt is up +8% QoQ and YoY to just shy of $27 billion.
• Model Trading Indicates: MPC has just 8 liquid secondary USD bonds in circulation. Our trading model avoids sees the MPC 5.15 03/01/30 as attractive short trading Indicator.
Energy Transfer (ET, Baa2 / BBB)
• Energy Transfer reported higher volumes to compensate for lower prices and reported 1Q revenue that was flat YoY and operating cash flow that was +5% higher YoY.
• Financial Position: ET won't produce its balance sheet numbers until the file their 10-Q in a couple of weeks. Issuer was re-levering its balance sheet as of 12/31/24.
• Model Trading Indicates: ET secondary bond are significantly (+15bp) wide of spreads that our trading model would consider attractive short trading being indicated.
Fidelity National Information Services (FIS, Baa2 / BBB)
•.Fidelity National Information Services reported revenue and operating earnings declined slightly YoY. The company affirm FY2025 "adjusted" EPS guidance from $5.70-$5.80 per share FY2025 sales outlook from $10.44 billion-$10.49 billion to $10.44 billion.
• Financial Position: FIS is cash flow positive before dividends and share repurchases and cash flow negative after returns to shareholders. ST debt rose by $1.7 bil to $3,362 bil and company is again "adding net balance sheet."
• Model Trading Indicates: FIS US bonds are trading (+20 to +25bp) wide of 52 week tight spreads. Our trading model would need significant spread tightening to generate attractive short trading indicators for the FIS secondary trading curve.
Skandinaviska Enskilda (SEB, A3 / A- SNP)
• Enskilda Bank reported flat 1Q revenue and earnings that beat expectations. They also reported an 18.3% CET1 capital ratio and affirmed earnings guidance for 2025. Deposits are growing, and loan quality is improving.
• Financial Position: Enskilda Banken has an 18.4% CET 1 capital ratio and seldom is paying down debt. But that is exactly what happened in 1Q 2025.
• Model Trading Indicates: There are only 8 liquid USD SEB secondary bonds and none have more than $900mm of trading cap ore trades more than $10mm per week. Our trading model avoids the SEB USD secondary trading curve.
IntesaSanPaolo (ISPIM, Baa3 / BBB- SNP)
• Intesa SanPaolo reported a 14% increase in 1Q net income YoY with operating income up 1% and costs down (-4%). Net interest income was lower YoY and CET 1 capital was 13.3% and credit quality was flat YoY.
• Financial Position: For those of you that have experience with ISPIM interim reporting the first set of interim numbers from Intesa remind one of the famous movie line from the old film "Animal House" when confronted by Dean Wormer relating to their interim grades "D.C. Day 0.0 GPA. All courses incomplete!" ISPIM does not specifically disclose net deposits, debt in circulation or actual stated equity. Those figures won't come for another month. However, ISPIM was re-levering at the end of 2025.
• Model Trading Indicates: With Intesa financial statements weeks away our credit trading model continues to see the ISPIM 6 5/8 06/20/33 and ISPIM 7.2 11/28/33 Senior Pref USD bonds as the most overvalued, but not tight enough in credit spread to create attractive short trading recommendation where (-8 to -16 bp) of spread tightening would be necessary for such a rec.
. Westpac Banking (WSTP, Aa2 / AA- SNP) .
. • WSTP reported 1H 2025 results below 1H 2024 levels with lower net interest income. The numbers did however, exceed expectations and management did not affirm guidance for the second half of Westpac's reporting period.
• Financial Position: Westpac has CET 1 capital ratio of 12.2% which from a metric perspective is not consistent with their loft credit ratings. Similar to several US money center banks, WSTP has shifted liquidity into trading capital which has led to greater re-levering of the Westpac balance sheet. Westpac by virtue of its AA unsecured credit rating comes to market globally early and often.
• Model Trading Indicates: Our trading model sees a 62.5% that WSTP will issue bonds within the next 10 trading days. At present only the subordinated USD secondary Westpac trading curve has bonds valued at levels where our credit trading model sees attractive short trading Indicators. Specifically the Subordinated WSTP 4.11 07/24/34 and WSTP 5.618 11/20/35 USD bonds as the most overvalued.
American Electric Power (AEP, Baa2 / BBB)
• AEP Energy reported 1Q revenue and operating cashflow that exceeded expectations. Company affirmed 2025 FY guidance and noted they had little exposure to US trade tariffs.
• Financial Position: AEP is not using balance sheet to return capital to shareholders, but is still re-levering given capex.
• Model Trading Indicates: Our credit trading model sees the AEP 5.2 01/15/29 as the only bond at the AEP Holdco secondary trading level that has enough trading liquidity to be a attractive short trading Indicator.
Duke Energy (DUK, Baa2 /BBB)
• DUK Energy reported strong 1Q revenue and operating cashflow. The company handily beat consensus estimates for 1Q EPS. Company affirmed 2025 FY guidance. DUK did mention that there would be a US trade tariff on operating cash flow of after capex in 2025.
• Financial Position: DUK is not using balance sheet to return capital to shareholders, but is still re-levering given capex and expansion of their many business platforms.
• Model Trading Indicates: DUK is not retaining capital and is re-levering its balance sheet. Our model sees the DUK 4 1/2 08/15/32 as the most attractive short trading indicator on the DUK USD Holdco trading curve.
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.