Systematic Credit and Equity G-250 Trading Indicators for May 8, 2025
Model Indicators
Less is more
The uncertainty surrounding the US economic outlook has "increased further" according to US Fed Chair Jerome Powell. That covers the risk trading volatility we have referred to over the past several weeks. Donald Trump is expected to announce a "trade agreement with the United Kingdom is a full and comprehensive one that will cement the relationship between the United States and the United Kingdom for many years to come."
S&P futures have traded in a +/- 125 pt range for the past 3 ½ days on these headlines. The actual impact on corporate credit? (-1bp) tighter. The actual impact on corporate credit trading volumes? (-15%) this week.
The actual impact of the headlines on corporate earnings or outlooks? A: None
The larger impact of the headlines are occurring on capital moving into non US markets. This is resulting in (1) A new price / earnings (P/E) trading paradigm in US vs. Non US markets and stronger performance for G – 250 credit supply in non – US markets.
Trump Tariff Talk and Corporate Earnings
How will the "economic uncertainty" help corporate issuers? A: Well if you are an Auto, Healthcare, Consumer or Energy issuer, the uncertainty and the tariffs are having the "reverse effect" on corporate earnings and outlooks. Meaning? US issuers are suffering and will suffer more than non – US issuers. Using just the Auto industry as an example, the non – US content of General Motors (GM) or a Ford (F) vehicle is not materially different from a BMW ( ) or Hyundai (HYNMTR) car sold in the US. The larger issue for the US Auto and Auto finance Cos is that as US economy pauses, it will impact Ford and GM to a greater extent than foreign Auto Co's owing to the % revenue generated in the US by each issuer.
Moreover, at this point only 2 US cars (both Cadillacs) are on attractive short supply in terms of US days inventory. Meaning? The non – US car companies with more limited inventory can charge higher prices.
As for the UK trade deal - In 2024, the total value of US goods trade with the UK was an estimated $148.0 billion. This includes $79.9 billion in US goods exports to the UK and $68.1 billion in US goods imports from the UK. The impact of any proposed deal with the UK, will be well… none.
Earnings Season
Thus far, 162 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 150 of the 162 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 $12 trillion of debt, with net debt (total debt less cash and ST investments) $72 billion higher than in 4Q 2024 and $800+ bil higher YoY. Thus far net debt on the 150 issuer balance sheets that are in the model has grown 1% QoQ and 7% YoY.
Non – financial net debt is growing growing .80% QoQ and 2.27% YoY.
At the same time, global non-financial issuers are paying out capital to shareholders at a rate 4x faster than their year-over-year revenue growth.
Wednesday's US IG Credit Trading:
USD trading volumes were again (-20%) below normal which is becoming the norm. This owes to capital flow into non – US denominated bonds and size of recent new USD supply which has made secondary trading one way. Meaning asking dealers to bid recent new supply. 7 of the most recent new issuers were the most sold bonds on Wednesday with dealers buying another $1.5 billion of IG debt. The small issue size of recent several non – financial offerings has led to a lack of secondary trading in larger tranches for several of the major issuers that have recently sold below $1 billion tranche size deals.
Both cash and the IG CDX were tighter Wednesday and stand roughly (-1.5bp) tighter on the week. US Big 6 Banks were the best performing sectors Yankee and US Regional banks as well as consumer staples were the poorest performing sectors on Wednesday
How to trade Earnings Season
A couple of changes this AM:
Long Positions: Attractive bonds (or new supply) from issuers that have already reported results. However, issue size of above $1 billion is the sole recommendation for fixed coupon bonds.
Short Positions: Issuer bonds trading within 20% of their 52-week tight spread, where the underlying company is releveraging its balance sheet. There aren't many of those at present trading levels.
The trading model prefers non-US banks as its top sectors and bonds for attractive long recommendations.
Westpac and National Australia Bank have reported results with 4 more European and 3 Japanese majors and Australian banks report next week. Canadian banks shortly after that.
Net debt on non - US bank balance sheets has dropped by (-$87 billion) QoQ.
Issuer News Wednesday
Apple (AAPL) is considering revamping Safari to focus on AI-powered search engines, potentially ending its longtime partnership with Google.
Apple's senior vice president of services Edward Cue mentioned that Apple has had discussions with Perplexity AI Inc. and is looking at other AI providers, including OpenAI, Anthropic PBC, DeepSeek, and Grok from Elon Musk's xAI.
Amtrak is cutting roughly 20% of its top-level management staff to reduce costs amid uncertainty about President Donald Trump's plans to invest in infrastructure.
The layoffs, which began Tuesday, are only affecting corporate-level jobs and won't affect railroad operation roles, with a goal to shave $100 million in costs.
UBS Group AG lowered its forecast for US corporate debt issuance this year, citing volatility tied to President Donald Trump's tariff rollout and a slower-than-expected pace of dealmaking.
Inflation Readings and Government Bonds
Sales at stores open at least a year, or same-store sales, rose 6.9% in the May 3 week compared to a year earlier, Johnson Redbook says. April sales expected to be up 6.4% over the same month of the previous year. Given reports from issuers, the majority of the comp increase is the result of increased prices.
US 10Y Treasury yields remain (-26bp) lower (4%) year to date..
U.S. IG Credit Valuation
US investment-grade (IG) credit backed away from the line of "most attractive" and "attractive" for long credit recommendations. This is the 36th consecutive trading day of the "long only" output. See details in the Model output section below.
The model also indicates that we would need (-6 to -10bp) of additional index credit spread tightening prior to the "Long Only" output changing.
Global Equity Correlation to IG Credit Spreads
While we have seen USD 10Y credit spreads correlate with US equity prices, we have seen USD credit spreads more closely correlate with non US equity prices in Yankee issuers. This would include the Japanese banks and German auto companies.
New Supply / Bond Maturities / Credit Fund outflows for May
We saw one G -250 USD issue on Wednesday. Athene (ATH, A1/A) global sold $600mm of secured bonds @ 105/3Y
3 more Euro transactions on Wednesday (Barclays (BACR), Iberdrola (IBESM) and Westpac (WSTP) followed NatWest (NWG), SocGen (SOCGEN), HSBC (HSBC), LLOYDS (LLOYDS), Santander (SANTAN) and UBS (UBS) on Tuesday.
Since the beginning of earnings season (April 14, 2025) 20 G – 250 issuers have sold 37 deals for €41.835 billion, which have traded better than US deals owing to issue size and trading liquidity.
At the same time US big 6 banks have raised $41.35 billion in 9 separate USD transactions (21 separate bonds). 21 other G – 250 issuers have raised $56 billion in 69 separate offerings.
As of this morning, the Euro market is financing 43% of all non – big 6 bank supply for the world's largest 250 corporate bond issuers. Yes, that is an all – time high (including 2008).
Citigroup (C), Morgan Stanley (MS), BNP (BNP), UBS (UBS) and Alphabet (GOOGL) have sold debt in both markets over that time.
While the €uro market is not supplanting USD for attracting capital, additional non – US supply is lowering non – US demand for new USD issues and shrinking offering sizes and secondary trading volumes.
Systematic Trading Model Indicators – Wednesday
The model maintains its "long-only" stance across its 6,200-bond, 250-issuer USD large-cap universe for the 36th consecutive trading day. Attractive short recommendations remain near five-year lows, with over 72% of model recommendations classified as attractive long.
Attractive Trading Sectors
Attractive Long Trading Sectors: All TMT, UK banks, French banks, 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 are (+12bp) wide of their attractive short trading levels. US Big 6 banks are also attractive short trading recommendations (-6 to -8bp) tighter from current trading levels, while Single A rated Healthcare needs (-10 to -16bp) of credit spread tightening to create attractive short trading recommendations.
Systematic Credit Recommendations
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 Recommendations
Friday's LLOYDS 5.721 06/05/301 recommendation reached its avoid trading level on Wednesday.
Wednesday Sample Trading Recommendation Credit Spread Movement
Since February 24, we've published 40 secondary and new-issue trading recommendations from our model:
• 17 recommendations have reached their avoid-trading level and tightened by (-10.1bp) on average
• The remaining 23 recommendations have widened by an average of +2.6 bp.
• Across all 40 recommendations, credit spreads are (-3.8bp) tighter.
Prior long/short trading recommendations
Of the 46 new-issue and secondary trading recommendations published (22 long and 24 short) that reached their avoid trading level, the average credit spread movement was (+/-5.6bp).
Of the 10 long recs issued before February 22 that haven't yet hit the avoid-trading threshold:
• Four are BBB-rated and have widened by +29 bp on average since being recommended.
• They currently trade at 154 bp over the UST curve, with an 8.2-year duration.
• Our model projects an average spread tightening of -34.3 bp remaining.
• Six are single-A rated and have widened by +19.7 bp since recommendation.
• They now trade at 112 bp over the UST curve, with a 10.7-year duration.
• The trading model indicates an average spread tightening of -24.5 bp remains.
Earnings yesterday and last week
BMW (BMW, A2 / A2)
• BMW reported a (-25%) decline in pre-tax profit in their 1Q 2025 on a -1.4% decline in auto units delivered and a -3.9% decline in motorcycle unit deliveries. Company continues to believe that 2025 results will be similar to 2024.
• Financial Position: Despite the slowdown in unit sales, BMW net debt is still €12.5 bil higher YoY. Company is, however, retaining capital.
• Model Trading Recommendation: Our trading model sees just 3 of the 35 liquid USD secondary BMW bonds as overvalued. Credit spreads would need to tighten by (-8 to -15bp) from current levels to create an attractive short trading recommendation. BMW equity is considered attractive according to the trading model.
Occidental Petroleum (OXY, Baa3 / BB+)
• Occidental Petroleum had a much-improved 1Q revenue and operating result despite negative pricing. Operating cash flow improved 5% YoY to $2.15 bil in the quarter.
• Financial Position: The OXY balance sheet continues to improve with net debt down (-$3 billion) YoY.
• Model Trading Recommendation: Nine attractive secondary OXY USD bonds are significantly attractive long recommendations according to our trading model. The OXY 5.2 08/01/29 is considered the most attractive.
Disney (DIS, A2 / A)
• Disney reported 2Q results that were highly unusual even for Disney. Every part of the company's business (Theme Parks, Sports, and Entertainment) reported positive metrics, operating income, and cash flow. In a more circuitous fashion, the company is being aided by tariff fears and local leisure choices even as each operating division raises prices. Company raised guidance and announced the launch of an Abu Dhabi theme park.
• Financial Position: Disney (DIS) continues to grow cash flow, increase returns to shareholders, and decrease balance sheet leverage.
• Model Trading Recommendation: Avoid the bonds, buy the stock. Disney hasn't offered publicly traded debt since 2020. It's important to note the timing of that $11 billion offering. Interest rates were lower and credit spreads materially wider at the time owing to COVID. Hence, the coupons on the most liquid Disney (DIS) secondary bonds are well below market and not attractive to a leveraged investor. Equity returns continue to grow, however, and with the current equity price within 10% of a 15-year low, Disney (DIS) equity is the most attractive publicly traded security in that capital structure.
Morgan Stanley (MS, A1 / A- SNP)
• Morgan Stanley (MS) filed their 10-Q on Friday.
• Financial Position: Morgan Stanley continues to grow all aspects of its non-capital markets businesses, which necessitates adding debt to do so. CET1 capital rose to 15.3% from 15.1% during the quarter.
• Model Trading Recommendation: Morgan Stanley has 25 liquid USD bonds that are considered overvalued by our credit trading model. The model sees these bonds as (-4 to -10bp) of credit spread tightening from having an attractive short trading recommendation valuation. The model does see Morgan Stanley (MS) equity as undervalued at its current price.
DNB (DNBNO, A2 / A SNP)
• DNB reported 1Q net profit +6.3% YoY as deposits grew and credit quality improved. On 6 March, DNB completed the acquisition of Carnegie Holding AB, and the merged brokerage house DNB Carnegie will be launched on 12 May, which will make DNB a larger Nordic capital markets competitor going forward.
• Financial Position: DNB has an 18.5% CET1 capital ratio and seldom reduces debt. But with the acquisition of Carnegie, the bank added liquidity and issued less debt in 1Q 2025.
• Model Trading Recommendation: There are only 6 liquid USD DNB secondary bonds, and 3 have more than $900mm of trading cap or trade more than $10mm per week. Our trading model sees DNBNO secondary bonds as an attractive long recommendation at wider spreads. The trading model also sees DNBNO equity as fairly valued at its Wednesday closing price.
CaixaBank (CABK, Baa2 / BBB+ SNP)
• CaixaBank 1Q profit +6.9% higher on a like-for-like basis. Accounting profit rose 46.2%, after recording 25% of the banking tax on NII and fees on a linear accrual. CABK NPL ratio fell to an all-time low of 2.5% (2.6% at the end of 2024). Deposits continue to grow modestly.
• Financial Position: CET1 capital of 12.5% is near an all-time high for CABK, and the issuer is adding liquidity faster than total debt.
• Model Trading Recommendation: With just 6 liquid Caixa USD-denominated bonds in circulation, our trading model sees only the CABKSM 6.684 09/13/27 as an attractive long recommendation. The trading model also sees CABKSM common as fairly valued at its Wednesday closing price.
National Australia Bank (NAB, Aa2 / AA- SNP)
• NAB reported 1H 2025 results below 1H 2024 levels with lower net interest income. The numbers did, however, exceed expectations, and management mentioned the name "Trump" more than once but would not affirm guidance for the second half of the NAB fiscal year.
• Financial Position: NAB has a CET1 capital ratio of 12.13% and has been adding debt to its balance sheet for 5 years. Similar to several US money center banks, National Australia Bank has shifted liquidity into trading capital, which has led to greater re-levering of the NAB balance sheet.
• Model Trading Recommendation: Our trading model sees a 12.5% chance that NAB will issue bonds within the next 10 trading days. At present, only 4 of the 25 liquid senior and subordinated NAB USD secondary bonds are considered overvalued by our trading model, which would need (-9 to -14bp) of credit spread tightening before seeing any attractive short trading recommendations for the National Australia Bank secondary trading curve. The trading model does see NABAU equity as attractive at Wednesday's closing price.
Air Lease (AL, BBB / BBB)
• Air Lease reported 1Q revenue increase of 11% and operating cash flow growth of 16% as both units leased and pricing improved.
• Financial Position: Net debt was flat QoQ but still 5% higher YoY at 31 March 2025.
• Model Trading Recommendation: Just 2 of the publicly traded USD AL bonds have market capital above $1 bil, and neither USD bond is within (-20bp) of credit spread levels that would warrant an attractive short trading recommendation from our trading model. AL equity is at an all-time high as of last night and is not attractive according to our trading model.
Exelon (EXC, Baa2 / BBB+)
• Exelon reported strong 1Q revenue growth of 11% and earnings that rose 40% YoY after tax. 1Q 2025 saw expected rate increases at ComEd, PECO, BGE, and PHI; and the company did generate a higher return on regulatory assets at ComEd.
• Financial Position: Like DUK, EXC is not using its balance sheet to return capital to shareholders but is still re-levering given capex and expansion of their many business platforms.
• Model Trading Recommendation: To get a short trading recommendation for EXC, that would need to emanate from the holdco level. While EXC has 15 liquid secondary holdco bonds in circulation, none are within (-11bp) of levels where our trading model would create an attractive short trading recommendation. The trading model does not see EXC equity as attractive as of last night's closing price.
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.