Systematic Credit and Equity G-255 Trading Indicators for August 29, 2025
What we do: Our trading model provides both high level and individual bond trading indicators that are used as risk management tools and for generating daily credit trades. This model produces 12,400 trade indicators daily, covering 6,200 bonds. The "Global 255" corporate issuer systematic credit trading research universe encompasses over 6,200 bonds representing $6.5 trillion in USD market capital. These bonds dominate the market, accounting for more than 75% the daily investment-grade (IG) corporate bond trades reported on TRACE.
Good morning, This is the first week of 2025 and only the third week in 2 years where corporate bond inflows + bond retirement, less G – 255 new supply was greater than $20 billion and IG credit spreads widened more than +2bp WoW. The Trading model has shed almost 200 short trading indicators in 5 trading days.
US credit spreads and US equity prices diverged for a fourth consecutive day. Have we seen this movie before? A: Yes. Almost invariably, the dislocation of risk historically has related to (a) Geo – political or "banking crisis" outside the US, (b) Geo Political or "banking crisis" within the US, (c ) Material Central Bank issues in the US or abroad. This is first time in the 36 year existence of the systematic trading model where all three items influenced trading at the same time.
Since we are short on space. There is a vote of confidence for the current French Government on September 8 which is expected to have a vote of "no confidence." Keeping it simple:
Will the French no confidence vote materially impact:
(1) French Government bond yields? A: Not materially
(2) The French Economy? A: Not materially
(3) French Corporate Earnings? A: Not materially.
What is causing US IG credit spreads to widen?
(1) Yankee Banks have widened by +10bp at the 10Y level in a week.
(2) The US Federal Reserve headlines are moving fresh capital into non US corporate bond markets
(3) EOM selling into what is normally the largest level of new supply for the year (first 2 weeks of September).
(4) Global corporations are selling debt to fund share repurchase and dividend payout at a pace 4x revenue growth. More large global corporate debt issuers (140) of the top 255 are adding net leverage than at any time over the past 35 year.
Have US credit spreads moved enough for the systematic trading model to change is trading strategy?
(1) We need +4 bp more of over IG widening
(2) ETF and Mutual fund flows need to stay positive.
(3) US equity pricing needs remain stable.
What is the longest period of time that US credit spreads and US equity market movements have diverged ?
(1) In October/November 2011 US credit and equity prices diverged for 31 of a possible 41 days (European "debt crisis.").
Key Earnings Headlines: CIBC, TD and Dell.
The systematic trading model doesn't read analyst or Bloomberg headlines. Consequently strong results from Dell (DELL attractive short debt/attractive long equity) CIBC (CM attractive short debt/attractive long equity) and Toronto Dominion (TD attractive both debt and equity) are getting "spun" in a financial medial headlines.
The trading model also does not forecast results; it responds to them. However, to think that there is correlation between results from Royal Bank of Canada, Canadian Imperial Bank, Bank of Nova Scotia and Toronto Dominion Bank and US Banks… is not a good assumption. With Canadian Bank earnings season over:
Canadian Bank Sector Overview:
G – 255 Canadian Bank 3Q 2025 Operating Metrics
Canadian Bank Sector Overview
Key Trading Points: Canadian Banks vs. US Banks
Lending Scale: The US Big 6 banks are not materially larger than the Canadian Big 6 banks in terms of lending, with net loans being roughly equivalent.
Deposits: US Big 6 banks hold approximately 28% more deposits than Canadian Big 6 banks.
Leverage: Canadian Big 6 banks operate with less net leverage compared to US Big 6 banks.
Profitability: Canadian Big 6 banks are more profitable than their US counterparts.
Growth: Canadian Big 6 banks are growing faster than US Big 6 banks.
Shareholder Returns: Canadian Big 6 banks are increasing shareholder returns at a faster rate than US banks.
Leverage Comparison: US Big 6 banks have higher leverage than Canadian Big 6 banks.
G – 255 Canadian Bank 3Q 2025 Balance Sheet Metrics 3 de-levering, 3 re-levering
G-255 Canadian Bank 3Q 2025 Operating Metrics
Revenue Growth: Canadian banks exhibit the fastest revenue growth among developed nation banking sectors globally.
Earnings vs. Equity: Earnings are growing at 20% annually, while tangible equity growth lags at 9% per year.
G-255 Canadian Bank 3Q 2025 Balance Sheet Metrics
De-levering/Re-levering: Three banks are de-levering, while three are re-levering.
Deposits as % of Funding: At 12.4%, this is the highest proportion of any global banking group.
Dividend and Share Repurchase Growth: Growing at approximately 27% annually, slightly outpacing profit growth.
USD Secondary Canadian Bank Bonds
Total Bonds: 172 USD-denominated secondary Canadian bank bonds.
Market Cap: $167 billion, representing the smallest level of USD corporate debt funding among major global banking sectors.
Performance: The sector remains particularly strong (see pages 4 and 7 for earnings summary and trade indicators).
Today's Systematic Trading Indicators
Big 6 subordinated bank Holdco (USD only)
USD Single A Industrial sector (USD only)
European Single A Energy (all currencies)
Are the top 3 short indicated sectors.
UK Banks (all currencies)
US BBB TMT (USD and EUR)
French Banks (all currencies)
Are the top 3 long indicated sectors.
USD Systematic Trading Model:
This morning's model indicators suggest credit will continue to tighten or rise in the near term.
Trading Allocation Strategy
50% Long: Undervalued, deleveraging bonds.
30% Short: Overvalued bonds in re-levering sectors.
20% Front-End: 75% in floating-rate notes (<3 years).
Performance
Of 148 long/short trades in 2025 (marked via TRACE), 92% achieved ±5 bp targets, averaging ±7.42 bp per trade. Between June 30 and August 25, 2025, 27 long trade indicators reached "avoid" levels, shifting the long/short basket to a "more short" stance. Last week saw strong inflows into US corporate bond ETFs and mutual funds for investment-grade bonds.
Risk Management
The model avoids adding risk to G-255 issuers reporting within 30 days, complying with global regulatory requirements for material events.
US Economic Indicators / Inflation and Interest rate outlook
Initial Jobless Claims for the week ended August 23 fell -3k YoY compared to the same week of 2024. The 4 week average of 228.5k is -3k YoY
Thursday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: +9% above average
-G-255 Issuers: 95 of the top 100 traded issuer bonds accounted for 91% of top 100 issuer volume and 66% of total TRACE volume.
High-Yield (HY) Trading
-Volume: -31% below average
-G-255 Issuers: 18 of the top 25 traded bonds accounted for 71% of top 25 issuer volume and 63% of total TRACE volume.
Market Movement
U.S. CDX Index: -.1 @ 50.1bp
U.S. IG Cash Spreads: Wider for a fourth day but only by +1 bp. Healthcare underperformed
CDX HY Index: Unchanged @ 107.4 (per Bloomberg).
HY Cash Bonds: Were slightly higher Thursday with TMT and BB healthcare outperforming.
High-Yield Activity
- Dealers bought $800mm of HY bonds Thursday.
Most Bought HY Bonds
- EchoStar ( SATS Caa1/B attractive long)
Most Sold HY Bonds
- Cogent Communications (CCOI Ba2/BB-)
Investment-Grade Activity
- Dealers bought $2.5 bil of IG bonds Thursday.
Most Bought Sector: BBB TMT
- ATT (T Baa2/BBB attractive long)
- Broadcom (AVGO Baa1/BBB+ attractive long)
Most Sold Sector: Big 6 Banks
- Goldman Sachs (GS A2/BBB+ attractive short)
- Bank of America (BAC, A1/A attractive short)
Attractive Trading Sectors
Long Opportunities
Floating Rate Notes of de-levering issuers, Single A rated global Autos, BBB TMT, BBB Energy, and Euro Yankee Banks. Overall model indicators 208 bonds ($312 billion) are considered undervalued by the stochastic credit trading model, with attractive 95 long trade indicators for the entire 6,000 USD bond universe.
Short Opportunities
1479 bonds ($1.54 trillion) are considered overvalued by the stochastic credit trading model with 829
short trade indicators (-187 WoW and -946 MoM).
U.S. Big 6 Banks (All Ratings): $731 billion in overvalued market capital across 293 bonds, with 115 short indicators (81 fewer WoW).
Single A Industrials: $109 billion, in overvalued market capital across 109 bonds, with 71 short indicators (-19 WoW).
Single A and BB Energy $171 billion in overvalued market capital across 111 bonds, with 71 short indicators.
Single A Healthcare $169 billion in overvalued market capital across 116 bonds, with 82 short indicators.
Issuer News
None other than earnings announcements Thursday.
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 26% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: Our systematic credit trading indicator (IG and HY) remains overvalued. 140, (the most in the 34 year history of the trading model) of the world's 255 largest issuers of corporate debt, are adding leverage to their balance sheets.
Front end USD credit spreads are no longer near all – time tights.. Longer dated Moody's Baa credit spreads are only modestly tighter from April wide levels.
2025 10 - year credit spreads: are wider YoY and YTD.
UST 10Y rates are +35 bp higher YoY and -35 bp YTD
Global Equity Correlation to IG Credit Spreads
For the third consecutive trading day, U.S. IG credit spreads, HY prices and U.S. equity prices did not correlate owing to separate credit events (see issuer news) and several proposed investments/actions by the US Government. While there is an 80% historic correlation between US equity prices and 10Y US corporate credit spreads, many of the recent geopolitical headlines and US currency fluctuation have led to a temporary de-coupling of the two risk markets.
New USD G-255 supply and fund flow data
Net inflows to ETFs totaled $9.97b in the week ended Aug. 26, 2025, Inflows into Mutual Funds totaled $2.7 billion ended Aug. 27, compared to a week earlier, according to LSEG Lipper.
Short and intermediate investment-grade bonds: $1.83b inflow vs. $3.41b inflow
High-yield notes: $707.8m outflow vs. $184.7m inflow
Treasuries: $874.7m inflow vs. $964.3m inflow
US leveraged loans: $530.9m inflow vs. $296.8m inflow
Mortgage-related: $234.7m inflow vs. $712.5m inflow
This is the first week of 2025 and only the third week in 2 years where corporate bond inflows + bond retirement, less G – 255 new supply was greater than $20 billion and IG credit spreads widened more than +2bp WoW.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 829, -187 WoW. The systematic credit market indicator remains overvalued. The number of short indicators = (+79% than the 200 day moving average.
Attractive long indicators: 95, +20 from Thursday.
Systematic Portfolio Trading Model Indicator:
Prioritize Long Positions: Focus on deleveraging new issues with attractive valuations, targeting 10-year maturities.
Short Positions: Target re-levering issuers trading at the deepest discount from their model avoid point. Avoid 7-year maturities due to low attractiveness.
Replace Longs: Replace long positions that have reached their avoid trading level.
Portfolio Trading Hurdle: Maintain a 1:1 long-to-short ratio once the 70% long position hurdle is reached.
Current Status of trading indicators below:
In the past 41 days, 25 long trades reached their avoid trading levels and were replaced by 10 new issue and new short trade indicators.
Systematic Credit Trading Strategy August 25, 2025
Closed Positions: last week, the long/short basket trade exited 5 new issue trades. On Monday, the second Deutsche Bank NY (Baa1/BBB) DB 4.95 08/04/31 reached its avoid trading level.
Enter New Longs: Over the past 2 week, the model indicator added 6 new issues. With the Deutsche Bank NY (Baa1/BBB) DB 4.95 08/04/31 widening to 103/5Y the trading model re-enters that trade for a third time.
3. Enter New Short trades: The trading model indicators show adding at least 3 new issue trades prior to adding any short trades.
4. Monitor Trade Position (Portfolio) Composition:
• Track the percentage of long positions relative to the total portfolio.
• If replacing the long positions that have reached their avoid trading level pushes the portfolio above the 70% long hurdle, initiate short positions in re-levering issuers (avoiding 7-year maturities) at a 1:1 ratio for any additional long positions.
5. Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic
6. Thursday's Basket Trade long/ short ratio 58%
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.
Current Sample Systematic Basket bond trades based on trading strategy
No new trade indicators on Thursday.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – August 28, 2025)
Total Trades: 148 (1% of total trades).
Performance Summary:
Long Indicators: 110/116 reached avoid-trading levels, tightening by -9.53 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 6 widened by 2.26 bp.
Remaining Shorts: 5 tightened by -15.83 bp.
Average Spread Movement: ±7.43 bp in the indicated direction.
Success Rate: 93% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.45 trading days) normal.
Canadian Bank Earnings on Thursday
Toronto Dominion Bank (TD, A1/A, attractive long) Earnings Summary:
Toronto Dominion Bank reported 3Q revenue that rose 7.9% YoY and operating earnings that rose 14% YoY.
3Q Canadian Banking net rose 1% YoY.
3Q US Bank income is not comparable given the sale of Schwab shares.
Loans are flat % YoY. Credit quality was -.5 lower QoQ and -.12 YoY.
Company guidance is for 12% ROE
Financial Position:
• Tier 1 capital at 14.8% v 14.9 % at April 30, 2025, but up from 13.1% in 3Q 2024.
• Company did use balance sheet to repurchase equity and pay dividends (CAD 3.4 billion) in 3Q 2025.
• Deposits fell by CAD 10.8 billion QoQ, and rose CAD 36.4 billion YoY to $1.257 Trillion.
• Balance sheet liquidity declined QoQ and but is higher YoY.
• TD has net cash on its balance sheet.
Dividends and share repurchases are growing at an annualized pace of 27% per annum.
Trading Model Indicator: 37 Toronto Dominion Bank secondary bonds in circulation have a market capitalization of $850mm or more. 2 TD systematic trading model indicators are undervalued, while three bonds have long trade indicators. None have maturities longer than 18 months.
Equity Indicator: TD CN equity is attractive its current CAD 100.27 price.
Canadian Imperial Bank (CM, A2/A-, Attractive short credit /long equity) Earnings Summary:
CIBC 3Q revenue that rose 10% YoY and operating earnings that rose 14%.
3Q Net interest income rose 6% YoY after lower charge - offs
3Q Capital markets income doubled YoY. Non-interest income rose 17% YoY.
3Q Loans were rose 2% QoQ and 6% YoY.
3Q Credit quality improved (+2bp) and is (-4bp) YoY. CIBC is a premier global lender.
Financial Position:
• Equity Tier 1 capital was 13.4% vs. 13.3% at April 30, 2025 and 13.4 at July 31, 2024.
• Total debt rose CAD 13 bil QoQ and CAD 41 billion YoY while net debt rose by CAD 17 billion QoQ and CAD 44 billion YoY
• Deposits grew by CAD 8 billion QoQ and CAD 40 billion YoY via acquisition.
• At present company is using balance sheet to repurchase shares and pay dividends. However, the management of the CIBC balance sheet for the purposes of lending is very precise.
Share repurchase and dividend growth is 200% per annum at present.
Trading Model Indicator: Of the 17 USD CM in circulation that have a market capitalization of $750mm or more, 9 have short trade indicators, 6 have overvalued indicators and none has a maturity longer than 8 years.
Equity Indicator: CM CN equity is attractive long at CAD 99.51 per share.
Dell (DELL, Baa2/BBB, attractive long) Earnings Summary:
Dell reported 2Q revenue that rose 26% YoY and earnings that rose 47% YoY.
•2Q Infrastructure Solutions Group (ISG) revenue: $16.8 billion, + 44% YoY
•2Q Servers and Networking revenue: $12.9 billion, up 69%
•2Q Storage revenue: $3.9 billion, down 3%
•2Q Client Solutions Group (CSG) revenue: $12.5 billion, +1%
•Full-year FY26 GAAP Revenue and earnings are expected to rise 25% and 17% YoY
•Third-quarter FY26 revenue expected between $26.5 billion and $27.5 billion, up 11% YoY
Financial Position:
• 2Q operating cashflow rose 80% to $2.543 billion 1H YoY OCF growth is 130%.
• Company did not use balance sheet to repurchase equity and pay dividends $1.3 bil.
• 2Q Total debt was unchanged QoQ and +$4 bill YoY.
• Balance sheet liquidity improved QoQ and YoY.
• Net Debt is now flat QoQ and YoY ($20.5 billion).
Dividends and share repurchases are growing at an annualized pace of 31% per annum.
Trading Model Indicator: 17 USD Dell secondary bonds in circulation have a market capitalization of $700mm or more. 4 Dell systematic trading model indicators are overvalued, while 5 bonds have short trade indicators. The DELL 5 1/2 04/01/35 has the greatest spread widening opportunity.
Equity Indicator: DELL US equity is attractive @ 128.9 according to the systematic trading model.
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.