Systematic Credit and Equity G-250 Trading Indicators for April 28, 2025
Good morning! Hoping everyone had a great weekend. Well Main Street, Wall Street, Pennsylvania Avenue, and Sonnemannstrasse all appear to be intersecting as we enter the third week of earnings season, which will include far more non-US members of the world's largest 250 issuers of corporate debt. So to keep the record straight, 5 European, 1 Japanese, 1 Korean, and 1 Canadian issuer have reported. It's a bit early to offer comparisons.
However, we saw Citigroup (C), Nordea (NDASS), and this morning BNP (BNP) sell benchmark bonds in Europe. We have only seen a very good Bank of America (BAC) subordinated issue in USD over the same period. We are also seeing LVMH along with 12 other borrowers hit the € Euro new issue market this AM. This is the phenomenon we have been writing about since the introduction of tariff impacts started to hit financial headlines.
We had 38 issuers report results, offer outlooks, and provide input as to the impact of US tariffs on their respective businesses. Have the markets reacted? A: not really.
Risk in the US is still gravitating to headlines about Trump negotiations with... whoever and how the Trump administration is attempting to reshape the role of the executive branch of the US Government. Not surprisingly, the initial knee-jerk reaction for global issuers of corporate debt is to issue debt somewhere other than the US.
Following a 7th consecutive day of credit tightening, today's "long only" credit trading model output marks a 28th consecutive day. However, if credit spreads tighten by more than 1 basis point today, Monday is likely to be the last day of this streak.
Earnings Season
We identified errors in our Centene (CNC) and HCA (HCA) earnings reports published on Friday. We are re-publishing corrected versions of these reports, along with follow-up updates on Johnson & Johnson (JNJ), AbbVie (ABBV), and Hyundai Motors (HYNMTR).
With Just under 30% of the issuers that will report results for March 31 – May 31 period, US bank leverage is increasing the most quickly. US industrial leverage is growing around 3% QoQ and the few non – US companies that have reported are not increasing leverage by more than 1.5% QoQ thus far.
Friday's US IG Credit Trading:
Credit markets tracked equities (again), with the US IG CDX spread unchanged @ 66.7 but cash bonds tighter by (-1.5bp) and Financials outperforming all other sectors. Secondary credit performed in line with recent new supply.
As to how to trade Earnings Season
While more issuers are adding debt (and pushing their credit spreads wider). The trading pattern for the next few weeks is pretty straightforward. Get long the attractive bonds (or new supply) where the issuer has already reported results. What to short? Issuer bonds trading within 20% of their 52 – week tight spread where the underlying company is re-levering their balance sheet.
As noted above the 50 non financial issuers that have reported results, spent $81 billion on share repurchases and dividends so far in 1Q 2025. Those issuers have needed to raise $58 billion of the $81 billion paid out via the banks and debt markets.
Issuer news over the weekend
Airbus SE agreed to take over some assets and sites from Spirit AeroSystems Holdings Inc., clearing the way for Spirit to be acquired by Boeing Co.
Mediobanca has launched a €6.3 billion offer to acquire the wealth management arm of Italian insurer Assicurazioni Generali SpA, which would allow it to accelerate its strategic shift to wealth management.
Inflation Readings and Government Bonds
US April Final Michigan Sentiment Fell to 52.2 from 57 in March
Expected change in median prices during the next year rose to 6.5% vs. 5.0%
Expected change in median prices during the next 5-10 years rose to 4.4%
U.S. IG Credit Valuation
US investment-grade (IG) credit continues to be the "most attractive" for long credit indicators for the 29th consecutive trading day. Friday's spread tightening was not enough to generate less than 70% of all model indicators as attractive long. However, we are at 70.9%.
Though Bloomberg data suggests US IG credit spreads are approximately 7 to 10 bp tighter than the April 10 peak wide spread, our numbers are materially higher. 670 bonds ($1.07 trillion) remain classified as "Position long" or "Attractive long" for trading, while 460 bonds ($780 billion) now read "Short" or "Position short."
Equity Correlation to IG Credit Spreads
Friday was the 11th trading day in 12, where US 10Y credit spreads correlated with US equity index price changes.
New Supply / Bond Maturities / Credit Fund outflows for April
We have seen $58.7 billion of new US debt issued by the world's 250 largest corporate borrowers. All but 11% of the new supply has been from financial issuers. Thus far in April, over $90 billion of G-250 issuer bonds have matured or been called, with over $10 billion of those bonds maturing or called on Friday.
Walmart (WMT, Aa2/AA) new supply had spread levels not seen in recent weeks for any issuer (including Walmart). Those bonds remain at new issue spread.
Systematic Trading Model Indicators – Monday
While US IG credit spreads continue to rally with equities and reported earnings, We are still another (-9bp) of overall credit spread tightening before our model would begin to show significantly more attractive short opportunities.
The model maintains its "long-only" stance across its 6,200-bond, 250-issuer USD large-cap universe for the 29th consecutive trading day. Attractive short opportunities remain near five-year lows, with over 70% of model indicators classified as attractive long.
Attractive Trading Sectors
Attractive Long Trading Sectors: US Regional, UK 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
Systematic Credit Indicators
Our quantitative analysis and stochastic trading algorithms are the sole drivers of identifying trading opportunities. These strategies are backtested on historical data to assess performance, pinpoint weaknesses, and generate attractive long/short trades. The goal? Achieve a minimum of ±5 basis points of credit spread widening or tightening in as few trading days as possible, minimizing volatility risk while maximizing return on assets.
Most Recent Model Trading Indicators
Post earnings, the trading model recognized the Raytheon (Baa1/BBB+) RTX 6 03/15/31 with (-9bp) of tightening. Similarly, the Verizon (Baa1/BBB+) VZ 5 1/4 04/02/35 was also recognized with (-9bp) of tightening. Both bonds reached their avoid trading level on Friday.
Friday Sample Trading Opportunity and Credit Spread Movement
Since February 24, we've published 25 secondary and new-issue trading Indicators from our model:
• 11 indicators have reached their avoid-trading level.
• The remaining 14 indicators have widened by an average of 3.4 bp.
• Across all 25 indicators, credit spreads are -1bp.
Prior long/short trading opportunities
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 25.6 bp on average since being recognized.
• They currently trade at 1506 bp over the UST curve, with an 8.3-year duration.
• Our model projects an average spread tightening of -30 bp remaining.
• Six are single-A rated and have widened by +16.2 bp since indicated.
• They now trade at 108.5 bp over the UST curve, with a 10.9-year duration.
• The trading model indicates an average spread tightening of -21.3 bp remains.
Earnings results
Issuers reporting Thursday (later) and Friday
HCA Healthcare (HCA, Baa3/BBB-)
1Q Results: Revenue up 5.6% year-over-year (YoY), but earnings down 9% compared to 1Q 2024.
Financial Strategy: HCA is one of better run managed care providers in the US, prioritizes returning capital to shareholders through open-market equity repurchasing, funded by its balance sheet ($3B in 1Q 2025 vs. $1.5B in 1Q 2024).
Model Trading Indicators: HCA secondary bonds remain an attractive short trading indicators at tighter credit spreads.
Centene Corporation (CNC, Ba1/BBB-)
1Q Results: Revenue and earnings increased 15% YoY, driven by over 3 million new members in the Commercial, Individual Health Care, PDP Medicare, and Medicaid PDP markets.
Financial Position: Cash and securities exceed debt; $28B equity market cap. Secured a $6B revolver/term loan agreement.
Model Trading Indicators: All CNC bonds, except for CNC 3 3/8 02/15/30, are attractive long positions; CNC 4 5/8 12/15/29 is the most appealing.
Note: Credit rating (Ba1/BBB-) understates the strength of the balance sheet (no net debt).
AbbVie (ABBV, A3/A-)
1Q Results: Revenue up 8.4% YoY; net income down 1% due to "other charges" tripling to $1.45B (details in 10Q). Raised 2025 earnings outlook despite tariff concerns.
Financial Position: Re-levering balance sheet, not retaining capital as of 12/31/24.
Model Trading Indicators: Secondary trading curve is an attractive short at slightly tighter levels.
Johnson & Johnson (JNJ, Aaa/AAA)
1Q Results: Operating earnings up ~1% YoY after reversing $7.1B talc lawsuit reserves. Did not raise 2025 guidance; mentioned trade tariffs would impact non – US business.
Financial Position: Modestly growing net debt.
Model Trading Indicator: Secondary trading curve now an attractive short at slightly tighter credit spreads.
Hyundai Motors (HYNMTR, A3/A-)
1Q Results: Revenue flat YoY; operating earnings up 3%. North American retail sales rose 10.8% (driven by anticipated U.S. trade tariffs), while Chinese retail sales dropped 43.7%.
There were numerous comments re: trade tariffs, but HYNMTR continues to move forward with share repurchases.
Financial Position: The Hyundai bbalance sheet continues to show net debt growth YoY.
Model Trading Indicator: HYNMTR secondary trading curve remains an attractive short at tighter trading levels.
BNP (BNP, A1/A+)
BNP (BNP) reported 1Q revenue that rose 4% YoY and operating earnings that fell (-5%) YoY. CET 1 capital also fell slightly. That's all the bad news were are going to hear from BNP.
Financial Position: BNP is retaining capital, loan book is shrinking slightly. Deposits are up €26 billion QoQ and BNP used the capital to improve balance sheet liquidity. BNP is now de-levering and forecasting mid-single digit revenue growth and high single digit earnings growth.
Model Trading Indicator: Our credit trading model flips from short to attractive long secondary BNP trading indicator with the BNP 5.786 01/13/33 the most attractive issue. BNP is selling €5nc4 and €11 nc 10 bonds this AM and those will be the most attractive bonds in the BNP trading structure when issued
Nordea (NDASS, Aa3/A-)
• Nordea reported 1Q revenue that fell -3% YoY and operating earnings that fell (-10%) YoY. Nordea is paying out capital and CET 1 fell slightly in the quarter. Nordea still forecasting 5%+ earnings growth for 2025.
• Financial Position Nordea is not retaining capital, loan book is growing. Deposits rose €14 billion QoQ. Nordea continues to grow its debt structure and re-levering for the 8th quarter out of 9.
• Model Trading Indicator: Our credit trading model sees the NDASS secondary trading curve as an attractive short trading opportunity at tighter trading spreads.
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 their affiliates, 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.