Systematic Credit and Equity G-255 Trading Indicators for August 22, 2026
Good morning, A lot to cover in 1.5 pages. While markets were ostensibly closed on Thursday and the press is focused on the Jackson Hole symposium, there is little data to suggest, prior to August employment and inflation data, the markets will make any "bets" on future interest rates. We will have comments on Chairman Powell's success and legacy on Monday.
Market Credit Indicators – Still Tighter
Despite reduced but positive ETF and mutual fund corporate weekly fund flows, the trading model's credit market indicators signal "higher and tighter" for high-yield and investment-grade bonds. The key question remains the "buy the dip" in US equities while so many people are out over the next 6 trading days.
Testing the Trump Trade and the Impact of Trade Tariffs – How the Systematic Trading Model Works
We have written consistently that we are in the 4th inning of the impact of the Trump "Trade Tariffs" experiment. For months, we have been looking for capital flows to quantify the impact on the global economy, corporate earnings, and investor sentiment. After checking global equity, commodity, interest rate, and currency markets, we saw no impact on cash coming into US risk. Of course, the one place we didn't look is where there is significant capital flowing, not exactly out of the US but into non-US markets. Not surprisingly, the flows were right under our nose. Yep, the corporate bond market.
While capital into US ETFs and mutual funds since May is strong – it's very strong into short and intermediate funds. In longer-term USD corporate funds, "not so much." Hence, 7-year and shorter IG bonds are indeed at "all-time" tight spreads. HY bonds, definitely not. Out the curve, however, USD credit spreads aren't anywhere near November 2024 tight levels, and the fund flow and the impact of the trade tariffs explain why.
And before we go any further on Euro corporate bond ETFs have generated returns roughly twice those as US corporate bond ETFs YoY.
G-255 stands for the "255 largest global issuers of corporate debt." That includes USD, GBP, and EUR.
The US corporate bond market has roughly $11.4 trillion in market capital.
The European corporate bond market has roughly $5.5 trillion of market capital.
The UK GBP corporate bond market has roughly $1.9 trillion in market capital.
In total, almost 15,000 issuers and $20 trillion of corporate bond market capital.
As our reports show, there are 6,000 USD bonds, 2,500 EUR bonds, and 800 GBP bonds in our trading/research universe.
The 255 issuers have roughly $13.4 trillion of liquid market capital, and roughly $11 trillion is "tradable." However, of greater importance, the G-255 represent almost 70% of daily trading volume on all 3 markets.
The G-255 represents a minimum of 66% of all the trading and market capital in all 3 corporate debt markets. And to simplify, 176 of the 255 issuers sell debt in at least 2 of the three corporate bond capital markets.
Does the systematic trading model cover all three markets? A: Oh yes, and it is why almost all systematic credit is run from London. As that is the only trading venue that actively allows trading in all three currencies simultaneously.
How the Systematic Trading Model Works
The corporate bond indices for all three markets vary greatly.
In USD, financials represent between 30 and 35% of the US indices; in Europe, it's 10% more, and in the UK, financials are 37% of the associated indices.
In the US, technology and communications represent 14–19% of the US indices. In Euro, the number is 7–12%. In the UK, it's less than 10%.
In the US, industrial issuers represent 16–22% of the US indices; it's far less in both the EU and UK.
Healthcare weightings are materially higher in USD than in the other markets.
Finally, the financial reporting for these issuers varies greatly.
The systematic trading model uses ONLY publicly available data and, over its 34-year existence, has created a quantitative measurement system that, in local currency, determines individual issuer: (a) Balance sheet leverage and direction (b) Historic capital and current valuation (c) Equity trading direction (d) Individual valuation for each publicly traded instrument above the equivalent of $500mm in market value.
(1) The model then creates an over-trading indicator for: (a) each security (b) each issuer (c) each trading sector by credit rating and each trading market by region and currency.
Hence, IBM (IBM A2/A- attractive short both debt and equity) may have short trade USD Corp indicators, while the EUR-denominated bonds may only have overvalued or avoid trading indicators.
(2) The issuers with the largest number of extreme (long or short) indicators are then ranked in order of liquidity and number of indicators in either trading direction.
(3) The trading sectors with the most indicators at extreme (long or short) create a second set of indicators which include credit rating and trading currency market.
(4) Equity indicators are made only relative to the local market of the issuer.
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 short indicated sectors.
The Trump Trade and the Systematic Trading Model
(5) The last set of trading indicators are capital inflow/outflow data at the region level.
While US corporate bond inflows remain strong, we have noted the USD flows are focused on the front end. Longer-dated US corporate bonds are nowhere near all-time tight spreads.
At the same time, as trade tariffs begin to impact cashflow and operating decisions at most global corporates, the drop in the USD has led to a dramatic pullback in non-US corporate bond inflow and non-US overseas buying.
We are now seeing, for the first time since the US began raising interest rates post-COVID, strong inflows into European and UK corporate bond ETF and UCITS funds.
That inflow, combined with lower G-255 issuance in Euro and Sterling over the past 3 months, has led to larger credit spread tightening outside the US.
However, from a fund flow perspective, we are seeing quantitative change in the trade landscape. That being that non-US entities are moving new allocations to opportunities in other currencies.
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 144 long/short trades in 2025 (marked via TRACE), 92% achieved ±5 bp targets, averaging ±7.52 bp per trade. Between June 30 and August 19, 2025, 26 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.
Inflation, Economic Data, and Interest Rates
Initial Jobless Claims for the week ended August 15 rose 3k YoY to 235k – it's the first week in 4 where YoY initial claims were higher. The 4 week moving average of claims (226.25k) remains -9,750 lower than the 4 week moving average a year ago.
The S&P Global flash August factory purchasing managers index rose to 53.3, the highest since May 2022, according to data released Thursday.
US August composite index rose to 55.4 in August from 55.1 in July
Highest reading since Dec. 2024
Employment rises to 52.8 vs 51.5 in July
Sixth consecutive month of expansion
New orders rise vs prior month
Thursday's U.S. Credit Trading
Investment-Grade (IG) Trading
-Volume: -15% above average
-G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 95% of top 100 issuer volume and 75% of total TRACE volume.
High-Yield (HY) Trading
-Volume: -40% below average
-G-255 Issuers: 17 of the top 25 traded bonds accounted for 55% of top 25 issuer volume and 44% of total TRACE volume.
Market Movement
U.S. CDX Index: +1 @ 51.7bp
U.S. IG Cash Spreads: were (+1 to +4bp) wider to with IG Financials underperforming a third day.
CDX HY Index: -.2 @ 106.9 (per Bloomberg).
HY Cash Bonds: Energy outperformed and Consumer bonds were lower (again) Thursday.
High-Yield Activity
- Dealers sold $100mm of HY bonds Thursday.
Most Bought HY Bonds
- CCO Holdings (CHTR B1/BB- attractive long)
Most Sold HY Bonds – None that exceeded $25mm
-
Investment-Grade Activity
- Dealers sold $200mm of IG bonds Thursday.
Most Bought Sector: UK/French banks
- Barclays (Baa1/BBB+ attractive long )
- BNP (BNP A2/BBB+ attractive long)
Most Sold Sector: BBB TMT
- Verizon (VZ, Baa1/BBB+ attractive long)
- Oracle (ORCL, Baa2/BBB 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 130 bonds ($198.5 billion) are considered undervalued by the stochastic credit trading model, with 46 attractive long trade indicators for the entire 6,000 USD bond universe.
Short Opportunities
1524 bonds ($1.693 trillion) are considered overvalued by the stochastic credit trading model with 1016
short trade indicators for the entire 6,000 USD bond universe.
U.S. Big 6 Banks (All Ratings): $719 billion in overvalued market capital across 188 bonds, with 178 short indicators.
Single A Industrials: $118.9 billion, in overvalued market capital across 107 bonds, with 84 short indicators.
Single A and BB Energy $174.6 billion in overvalued market capital across 106 bonds, with 76 short indicators.
Single A Healthcare $170 billion in overvalued market capital across 116 bonds, with 89 short indicators.
Issuer News
None last night
U.S. IG Credit Valuation and Spreads
Credit Spread Recovery: U.S. credit spreads have recovered 38% of the widening observed from November 12, 2024, to April 10, 2025.
Credit Trading Model Valuation: Our systematic credit trading indicator is overall US credit market (IG and HY) is overvalued. We are now at 139 of the world's 255 largest issuers of corporate debt, adding leverage to their balance sheets.
2025 10 - year credit spreads: are wider YoY and YTD.
UST 10Y rates are +47 bp higher YoY and -24 bp YTD
Global Equity Correlation to IG Credit Spreads
U.S. IG credit spreads, HY prices and U.S. equity prices correlated for a 8th consecutive trading day as US equities were lower and US IG spreads were wider. More specifically as US bank equities pulled back over the past 3 trading days.
New USD G-255 supply and fund flow data
No new G – 255 supply on Thursday and none expected for next week.
Mutual Fund Flow
Short and Intermediate Investment-Grade Bonds: Inflow: $3.44 billion (vs. $2.5 billion previous week).
High-Yield Notes: Inflow: $184.5 million (vs. $136.6 million previous week).
Treasuries: Inflow: $964.1 million (vs. $2.71 billion previous week).
Data reflects the week ending August 20, 2025.
Corporate Bond ETF Flow
Total Corporate Bond ETFs flows dropped to $3.76 billion from $5.78 billion week-over-week (WoW).
Investment-Grade ETFs flow fell to $3.092 billion from $5.41 billion for the
High-Yield ETFs: Inflow rose to $667.7 million from $569.9 million WoW.
Data reflects the week ending August 18, 2025.
Month-to-Date (MTD) and Year-to-Date (YTD) Bond Supply
MTD (G-255):
31 issuers sold USD debt totalling $49.725 billion across 72 trades.
81% of the volume came from these trades.
YTD (G-255):
Supply reached $728.64 billion, 9% below 2024 totals as of the third week of August.
Non-financials accounted for 51% of total supply.
Based on inflows of $22 billion (Investment-Grade) and $1.5 billion (High-Yield), combined with $31 billion in G-255 bond retirements and $165 billion in coupon interest, net G-255 buying is expected to continue before the end of August.
Systematic Trading Model Indicators and Strategy
Attractive Short Indicators: 1016, +18 from Thursday. The systematic credit market indicator remains overvalued
Attractive long indicators: 46, down 4 from Thursday, now within 22.5% of the "attractive short" overall credit market indicator.
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 35 days, 24 long trades reached their avoid trading levels and were replaced by 9 new issue and new short trade indicators.
Systematic Credit Trading Strategy August 21, 2025
Closed Positions: Over the past week, the long/short basket trade exited the following:
Daimler Truck (A1/A) DTRGR 5 10/12/32
Citigroup (Ba1/BB+) C 6 7/8 PERP
Barclays (Baa1/BBB) BACR 4.476 11/11/29
JP Morgan (A3/A-) JPM 5.576 07/23/36
PNC Corp (A3/A-) PNC 5.373 07/21/36
2. Enter New Longs: Last week, the model indicator added:
• McDonald's (Baa1/BBB+) MCD 4.4 02/12/31 added a second time on Friday.
• McDonald's (Baa1/BBB+) MCD 5 02/13/36 (added as an attractive long trade on Monday).
• Deutsche Bank NY (Baa1/BBB) DB 4.95 08/04/31 added a second time on Friday.
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 Basket Trade long/ short ratio 50%
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
With no new supply expected next week – The trading model adds to the (1) McDonald's (Baa1/BBB+) MCD 4.4 02/12/31 and (2) Deutsche Bank NY (Baa1/BBB) DB 4.95 08/04/31 with both issues trading behind new issue spread at Thursday's close.
Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – August 21, 2025)
Total Trades: 148 (1% of total trades).
Performance Summary:
Long Indicators: 109/113 reached avoid-trading levels, tightening by -9.57 bp.
Short Indicators: 27/32 reached avoid-trading levels, widening by +5.48 bp.
Remaining Longs: 7 tightened by -1.84 bp.
Remaining Shorts: 5 tightened by -18.03 bp.
Average Spread Movement: ±7.52 bp in the recommended direction.
Success Rate: 93% of indicators reached avoid-trading levels, which is normal.
Average trade holding period: (20.5 trading days) normal.
Walmart (WMT Aa2/AA attractive long to attractive ) Earnings Summary:
Walmart reported 2Q 2025 revenue that rose .4.8% YoY while operating profit and operating margin declined slightly YoY.
2Q 2025 Performance:
US comparable store sales rose 4.5% at Walmart in 2Q 2026..
US comparable store sales rose 3.3% at Sam's club in 2Q 2026..
Walmart did not announce number of new store openings with approximately 10 closures announced in March
2026 Guidance: remains unchanged Operating income +3.5 to +5.5%.
Financial Position
First Half 2025:
Operating Cash Flow: rose 10% YoY to $18.3 billion.
Free Cash Flow (After Capex): rose 21% to $6.9 bil
Total Debt: rose $1.3 billion QoQ, and $4.4 billion YoY.
Net Debt: rose after dividends and and share repurchases in 1H 2026 rose $1.2 bill QoQ and $4 bill YoY
Trading Model Indicator: Walmart (WMT) corporate debt indicator flips to short. 28 of the 32 WMT secondary USD bonds have a market capitalization of $750 million or more. 13 bonds have overvalued indicators and 9 have short trade indicators. However, none of the 9 attractive short trading indicators show more than +3 bp spread widening potential at current levels.
Equity Indicator: LOW equity is a long trade @ its current 97.96 share 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.