Systematic Credit and Equity G-250 Trading Indicators for June 11, 2025
Good morning. With limited new data to analyze, our report remains concise, grounded in quantitative analysis, historical context, and stochastic probabilities. The $25 trillion large-cap (IG and HY) debt market continues its steady pace as markets await Tuesday's CPI and core CPI data. Recent headlines on Trump Trade Tariff victories in China, Mexico, and Europe have temporarily disrupted market momentum. Over the past 18 years, global capital markets have reached extreme highs or lows 14 times, driven by headline-fueled capital inflows or outflows—a common trading phenomenon.
Equity and Credit Market Dynamics
US equities are currently trading at seven-year "non-crisis highs," yet forecasted earnings growth from Wall Street analysts is at 15-year lows. This disconnect, coupled with the absence of significant sell signals, suggests a cautious market outlook. Historically, when valuations reach extremes, "new explorer" investors often find profit-takers—long-term professionals—stepping back. While no immediate selling pressure is evident, the lack of constructive headlines or buyable dips makes the next week's equity performance worth watching.
In contrast, US corporate credit remains resilient. Credit spreads hit multi-year tights last November and continue to support large corporate dividend increases and share repurchases. Year-over-year (YoY) credit spreads are 25 basis points wider, while year-to-date (YTD) spreads are marginally tighter. Although US credit correlates with equity movements, its spread changes are less volatile.
Money Supply and Market Liquidity
As noted yesterday, M1 money supply remains $12.6 trillion above trend, with US money market fund assets at $6.7 trillion—nearly three times higher than March 2020 levels. Offshore US bank deposits and capital market investments, representing 35% of total holdings, remain stable but show no growth. Declining trading volumes across most capital markets reflect reduced new investment, a recurring theme in our updates.
Today marks the second phase of the tariff trade narrative, with May CPI data providing the first insight since April's tariff implementations. Tariffs may contribute to local inflation, but today's data will clarify their impact.
Valuation and Trading Outlook
Quantitatively, US equities are significantly overvalued, while US corporate credit is slightly overvalued. Following attractive short trading indicators (1,100+) last November and long indicators (800+) in April, markets require additional economic data, trading volumes, and earnings outlooks to assess the Trump trade's trajectory. With significant cash on the sidelines and Trump's 2024 election victory, the current trade has the potential to persist.
Systematic Credit Model Portfolio Trading Strategy – Wednesday, June 11
Of the 6,000+ bonds in our research universe, 431 are trading near their 52-week tight or wide spread levels, 10% below average. The trading model indicators:
65% long/short positioning strategy.
35% allocated to front-end indicators, with 70% in floating-rate notes (FRNs) maturing in three years or less, targeting undervalued, deleveraging bonds.
Key Trading Issues for Tuesday
Lloyds (LLOYDS, multiple ratings and indicators) and Australia and New Zealand Bank (ANZ, multiple ratings and indicators): New supply opportunities.
Warner Bros Discovery (WBD, Ba2/BB): Attractive long indicators following Moody's downgrade.
EchoStar (SATS, B/Caa1) and DISH (D/Caa1): Attractive short indicators due to bankruptcy specifics.
Inflation, Economic Data, and Interest Rates
May CPI Data: Estimates, including Monday's New York Fed 1-year data, project CPI MoM at +0.2%, consistent with April.
US Treasury 10-Year Yield: Down 8 basis points YTD.
Earnings Season Insights
We hear from Cisco (CSCO A1/AA- attractive long) after close. This morning we include bank loan and balance sheet metrics from the UK.
UK Bank Operating and Loan Metrics 1Q 2025
Loan Growth: UK's seven largest regional banks reported 2.3% QoQ and 5.2% YoY loan growth, unlike US money center banks, which shifted assets into trading securities.
Loan Charge-Off Rates: Ranged between 0.30 and 0.60 basis points, lower than US counterparts.
Tier 1 Capital: Grew to 14.5% under ring-fenced standards, among the highest globally.
Capital Returns: Updates on shareholder returns will follow 2Q results in July/August, as several UK banks report cash flow data biannually.
UK Banks Balance Sheet Metrics 1Q 2025
Net Cash: Net Cash: Increased £36 billion QoQ but declined £91.8 billion YoY.
Debt Issuance and Deposits: Issued £63 billion in debt; deposits grew £220 billion YoY.
Liquidity: Rose £87.2 billion QoQ but fell £39 billion YoY.
Profitability: Earnings declined 12% on flat revenue growth due to higher charge-offs and slower non-interest revenue.
Tuesday's US Investment-Grade and High Yield Credit Trading
Trading Volume: 10% below average on Tuesday. G-255 issuers accounted for 82 of the top 100 traded bonds, representing 89% of top 100 issuer volume and 68% of total TRACE volume.
Market Movement:
US CDX Index: Tightened 0.5 basis points to 53.5bp.
US IG cash spreads: Tightened 1–3 basis points.
Outperformers: Autos and Industrials. Consumer sector underperformed.
High-Yield Activity: Dealers purchased $700 million in HY bonds, the lowest in six days. Most bought: Global Partners (GLP, B1/B+, not in our trading/research universe) and Transdigm Group (TDG, Ba3/BB-, attractive short).
Investment-Grade Activity: Dealers bought $1.4 billion in IG bonds after selling $1.8 billion on Monday. Most bought by dealers: Goldman Sachs (GS, A3/BBB+, attractive short), JP Morgan Chase (JPM, A1/A, attractive short). Most bought by end users: Warner Bros Discovery (WBD, Ba2/BB, attractive long).
Attractive Trading Sectors
Long Opportunities:
None Only 169 bonds ($238 billion) are undervalued, with 53 ($70 billion) considered attractive Trading model long indicators.
Short Opportunities
U.S. Big 6 Banks (All Ratings): $663.3 billion in overvalued market capital across 256 bonds, with 76 short indicators.
Energy (All Ratings) : $195.1 billion in overvalued market capital across 136 bonds, with 82 short indicators.
TMT (All Ratings) : $304 billion in overvalued market capital across 181 bonds, with 81 short indicators.
Single A Healthcare: $124.9 billion in overvalued market capital across 87 bonds, with 31 short indicators.
Issuer News
UBS (UBS, A2/A-attractive long): Shares fell over 2% in Tuesday trading after JPMorgan Chase noted that new Swiss capital rules may limit share buybacks. UBS credit spreads remained stable Monday/Tuesday despite the Swiss government's capital imposition.
Warner Bros. Discovery (WBD, Ba2/BB, attractive long): Moody's downgraded its debt, complicating bondholder discussions amid plans to split the company. WBD continues to "trade on spread" and remains an attractive long indicators.
General Motors (GM. Baa2/BBB attractive short): Plans to invest $4 billion in US manufacturing plants over the next two years to boost electric and gas-powered vehicle production in Michigan, Kansas, and Tennessee, targeting over 2 million vehicles annually. However, GM has averaged $3 billion annually in US plant investments over the past decade and already has capacity for over 2 million vehicles, raising questions about the announcement's impact.
U.S. IG Credit Valuation and Spreads Wednesday
Historically, credit spreads experience 2–4 significant (±25bp) movements annually. Currently, spreads have widened 50% of the expected move between November 12, 2024, and April 10, 2025. Credit spreads typically follow equity movements due to CDS and CDX spreads being driven by equity put premiums. Despite the trading model's "overvalued" stance, last week's substantial retail fund inflows and below-average attractive short indicators (compared to the two-year average) support the current trading strategy. Combined with the largest retail fund inflows of 2025 last week and over $80 billion in G-255 USD bond maturities or redemptions in the past 30 days, credit spreads have tightened, even with trading volume 15% below average. Current trading levels are "in the middle" of valuation extremes for long and short credit opportunities.
Global Equity Correlation to IG Credit Spreads
Both US equities and investment-grade (IG) credit spreads inched forward on Tuesday. Directionally the two have moved in tandem for 30 of the last 34 days. Key quantitative factors explain credit's relative underperformance compared to equities in 2025:
Technology represents 31% of S&P 500 market capitalization but only 8% of global top issuer debt.
Non-US corporate bond purchases declined 44% year-over-year.
Year-to-date retail inflows total $12 billion, 47% below the same period in 2024, despite last week's significant inflow.
With inflow into US retail corporate bond funds last week, US credit has slightly outperformed US equities over the past 10 trading days.
New Supply / Bond Maturities / Credit Fund inflows for June
2 new G-255 new issues on Tuesday. 2 of the 3 Lloyds (LLOYDS) transactions were seen as attractive (the 3Y bank holdco FRN and 11nc10 Subordinated).
All three of the Australia and New Zealand (NY Branch 3Y FRN, ANZ Bank 3Y fixed and ANZ 10Y Bank Subordinated) were attractive according to our trading model. There are very few 10Y subordinated bank issues in the USD IG trading spectrum, But ANZ issued one on Tuesday.
Just 2 new G-255 new issues in Europe Tuesday.
Oncor Electric Delivery (ONCRTX, A2/A+)
€9Y Fixed
Deutsche Bank AG Deutsche Bank (DB, Baa1/BBB)
€Benchmark 4NC3 SNP Fxd-to-FRN @ MS+105
Bank of Nova Scotia (BNS) is also selling covered bonds
Systematic Trading Model Indicators and Trading Strategy – Wednesday June 11
Model Output:
459 attractive short indicators: Up 20 from Tuesday AM, 4% above average, indicating overvaluation with potential for short indicators to double as US credit spreads tighten.
53 attractive long indicators: Down 6 from Tuesday.
.Portfolio Trading Strategy:
Of 6,000+ bonds in our research universe, 512 are trading near their 52-week tight or wide spread levels, 7.8% below average. The model indicates:
65% long/short positioning strategy.
35% allocated to front-end indicators, with 70% in floating-rate notes (FRNs) maturing in three years or less, targeting undervalued, deleveraging bonds.
Systematic Trading Strategy for the week ending June 12.
Weekly Trading Strategy (Ending June 12): The model output remains unchanged until Thursday's new fund flow data. Prioritize long positions in deleveraging new issues with attractive valuations. Avoid adding short positions until attractive short indicators exceed 400 and weekly fund inflows fall below $1.5 billion. The model indicates shorting one bond for each bond added long.
Systematic Credit Indicators
Our 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 managing volatility risk.
Most Recent Model Trading Indicators
NatWest (NWG, A3/BBB+) NWG 5.115 05/23/31 reached its avoid trading level on Monday
Union Pacific (UNP, A3/A-) UNP 5.6 12/1/54 is 1 of 10 new issue model indicators published prior to February 23, 2025 that has not reached its avoid trading level.
BHP (BHP, A1/A) BHP 5 1/8 02/21/32 is 1 of 10 new issue model indicators published prior to February 23, 2025 that has not reached its avoid trading level.
LLOYDS (LLOYDS Baa1/BBB-) Subordinated LLOYDS 6.068 06/13/36 added this morning as sample new issue attractive long trading indicators.
Sample Trade Performance Report (January 4, 2025 – June 10, 2025)
Overview
Total Trades: 116 (1% of total indicators)
Performance Summary:
Long Indicators: 67/88 reached avoid-trading levels, tightening by -10.09 bp.
Short Indicators: 24/28 reached avoid-trading levels, widening by +5.3 bp.
Remaining Longs: 21 tightened by -0.19 bp.
Remaining Shorts: 4 tightened by -5 bp.
Average Spread Movement: ±6.95 bp in the indicated direction.
Success Rate: 79% of indicators reached avoid-trading levels (11% below normal).
Notes:
All initial indicators are based on TRACE print (or new issue price) at the indicated date.
All avoid indicators are based on TRACE print trade at the "avoid point" on the trade date.
Recent Performance (Since May 15, 2025)
18 long indicators hit avoid-trading levels, contributing -1.4 bp to the overall spread tightening for the 67 long trades.
Overall performance improved from ±4.91 bp to ±6.95 bp across 116 sample trades.
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.