Good morning. After 6 months of equity markets rising and falling based on rumor, report, and clear rising inflation combined with slowing economic growth, the initial indications from the Supreme Court of the United

States are that perhaps US trade tariffs, structured as they are today, "might not be, in a manner of speaking, the American way." Thank you, Jack Nicholson, "A Few Good Men.

Implications of a Potential SCOTUS US Tariff Ruling

What happens in the event that the tariffs are not constitutional? A: adjusted earnings, broken trade agreements, and "Adjusted non-GAAP" accounting that is unfathomable. Beyond that, the US dollar will again be in flux, and capital plans that were put on hold will stay there. The ramifications of such a ruling aren't mind-boggling, but they will cause a reversal in almost all global corporate hiring and capital deployment practices.

"What are they doing here? They're selling Mortimer!" Yes, a couple lines from another ancient movie, "Trading Places," Don Ameche. So, despite the indication that SCOTUS may not go along with the tariffs, not a single move in a marketplace that has hinged on every tariff/trade comment and every proposed "meeting and negotiation."

Market reaction? None

And despite the fact that we are seeing accelerated slowing in the US economy, on Tuesday it was "Wall Street chiefs mark markets as overvalued." Yesterday it was "markets rebound with renewed optimism on AI earnings." US credit broke a 4-day slide, but overall ETF fund inflows were anemic, and forecasts for new supply over the next 12 months (in part to keep the share repurchase and dividend train moving) are rising.

Credit markets remain slightly overvalued, while the equity prices of the largest US corporate bond issuers remain slightly undervalued. As we have demonstrated, credit and equity pricing of the largest issuers of corporate debt can't mathematically diverge for long. Historically, the longest spell we have seen in the past 30 years was September–November 2011. It was when Mohamed El-Erian most incorrectly made his "contagion" calls for Europe's largest issuers of corporate debt, who also happened to have over $900 billion in USD debt at the time.

Big 6 Bank: Sector Example Systematic Credit Trading Indicators (please see pages 7 - 9)

Yesterday we printed our systematic trading indicators for 437 Big 6 USD bonds for bank level, Holdco level, Subordinated Holdco level, and AT1/Perp bonds. This morning, we have re-printed the model indicator for the entire sector and compared it to Wednesday's output. Overnight there were 37 single-bond trade indicator changes. The net changes are less stark (please see page 7).

We also are providing a single-issuer example of a twice-daily individual bond trade indicator (from last night) for Bank of America: 70 bonds comprising $184 billion of debt market cap. The equity trades +6% to its attractive long trading level. While the corporate capital structure (all 4 levels) is only seen as trading at extreme levels (colored red) at the Bank of America Bank level (only 3 bonds outstanding) and the front end (3nc2 to 6nc5) of the bank Holdco level (please see page 7), the remainder of the BAC debt capital structure (belly and long end of the Holdco, subordinated, and Perps) is seen as overvalued (colored in orange) as of last night. The model runs this particular calculation and trade indicator 12,000 times per day. These are last night's indicators.

For those of you thinking about trying this at home, it could be very hazardous to your health! Model indicator credit conclusion: BAC bonds most likely go tighter before they go wider.

Weekly ETF corporate credit inflow was mixed. Investment grade corporate bond ETF flow gained slightly while dedicated HY corporate bond ETFs saw outflow. G – 255 equities saw slight improvement on Wednesday as only 7 equities of the 244 issuers with $15 billion of tradable debt now down more than -10% in the past month. G – 255 equities are slightly attractive. G-255 corporate debt bounced on Wednesday after trading at its widest levels since May but is still modestly overvalued.

Top Short-Indicated Sector:

BBB Autos (All currencies)

Top 3 Long-Indicated Sectors:

US Regional Banks (USD)

UK Banks (all currencies)

U.S. BBB TMT (all currencies)

Trading Allocation Strategy:

47.5% Long: Undervalued, deleveraging bonds.

32.5% Short: Overvalued bonds in releveraging sectors.

20% Front-End: 75% in floating-rate notes (<3 years).

Risk Management:

The model avoids adding risk to G-255 issuers reporting within 30 days due to global regulatory requirements for material event disclosures.

Material Economic Indicators Reported Wednesday:

• Weekly rail carloadings for the week ended Nov. 1 fell -3.9% YoY. Intermodal traffic fell -6.4% YoY this was expected given 15,000 fewer retail outlets open in 2025 when compared to 2024.

Credit Trading Wednesday

Investment-Grade (IG) Trading

• Volume: +35 % above average with META, Oracle and Alphabet accounting for 8% of the volume

• G-255 Issuers: 97 of the top 100 traded issuer bonds accounted for 95% of top 100 issuer volume and 92% of total TRACE volume.

High-Yield (HY) Trading

• Volume: +14% above average.

• G-255 Issuers: 10 of the top 25 traded bonds accounted for 43% of top 25 issuer volume and 44% of total TRACE volume.

Wednesday Credit Market Movement

• US CDX Index: tighter -1.1bp at 48.5 bp (includes -4 bp of forward roll)

• US IG Cash Spreads: u (-1 to -3 bp) tighter with communications outperforming.

• CDX HY Index: +0.2 bp at 107,2 (per Bloomberg)

• HY Cash Bonds were wider Wednesday, with financials outperforming.

High-Yield Activity

• Dealers bought $800mm of high yield bonds on Wednesday.

• Most Bought HY Bonds: I Heart Communications (IHRT Caa1/CCC+)

• Most Sold HY Bonds: Tenet Healthcare (THC BA3/BB attractive short)

Investment Grade Activity

• Dealers sold $ 900 million of IG bonds on Wednesday.

• Most Bought Sector: BBB TMT

Fiserv (FI Baa2/BBB attractive short)

T-Mobil (TMUS Baa1/BBB attractive short)

• Most Sold Sector: Single A TMT

Meta (GOOGL Aa3/AA- attractive long)

Alphabet (GOOGL AA2 /AA+ attractive Long)

Long Opportunities

• Focus on de-leveraging issuers, including Single A-rated global Autos, BBB-rated TMT, BBB-rated Energy, Euro Yankee Banks, and Floating Rate Notes.

• Valuation Insight: The stochastic credit trading model identifies 168 undervalued bonds ($248 billion market value), with 56 long trade indicators across the 6,000-bond USD universe.

Short Opportunities

• 1,538 bonds ($2.4 trillion) are overvalued per the stochastic credit trading model, with 611 short trade indicators.

• U.S. Big 6 Banks (all ratings):No longer a short indicator as of October 22. Bonds +3 to +13 bp since 9/22.

• Single A and BB Energy: No longer a short indicator as of October 27. Bonds +4 to +16 bp since 9/22.

• Single A Healthcare: No longer a short indicator as of October 22. Bonds +3 to +10 bp since 9/22.

• Single A Industrials: No longer a short indicator as of October 22. Bonds +4 to +13 bp since 9/22.

• BBB Autos: 78 bonds ($94.3 billion) are overvalued, with 63 short trade indicators

U.S. IG Credit Valuation and Spreads

U.S. IG Credit Valuation and Spreads

• Credit Spread Recovery: U.S. credit spreads have recovered 43% of the widening observed from November 12, 2024, to April 10, 2025.

• Model Valuation: IG and HY markets show modest overvaluation. Post earnings announcements from 143 of the world's 255 largest issuers of corporate debt 144 issuers are increasing leverage.

2025 10-Year Credit Spreads

• Year-over-Year (YoY): are wider compared to last year.

• Year-to-Date (YTD): are wider.

• UST 10-Year Rates: -29bp YoY and -43.1bp YTD.

Bloomberg 10Y credit spreads are derived by taking the Moody's relevant index yield and subtracting the UST 10Y YTM

2 G-255 participants in the new issue market on that haven't come to market in a while. Intercontinental Exchange (ICE A3/A- de-levering) sold $1.25 billion of 3- and 5-year bonds that were priced on the attractive long line according to the systematic trading model. ICE had not sold bonds since August of 2024.

Transcontinental Pipeline (WMB Baa1/BBB+ de-levering ) has not come to market since 2020 and had only 5 bonds outstanding prior to Wednesday's $1,700 10- and 30-year trades.

Net inflows to ETFs totaled $8.23b in the week ended Nov. 4, 2025, including the effect of leveraged funds, compared with $10.3b the prior week

Dedicated Investment Grade corporate bond funds saw a slight increase in inflows week over week to $1.45 billion.

Dedicated High Yield Corporate bond funds saw outflows of -$771 million.

iShares iBoxx $ Investment Grade Corporate Bond ETF had the biggest inflow, of $1.28 billion.

The increased inflow in IG corporate ETFs continues to keep that group slightly overvalued as the market awaits the next "AI mega-deal" post Meta & Alphabet selling $55 billion of new bonds globally in the past week.

While US credit spreads are wider, the next catalyst to move markets will be (1) equity price movement, (2) fund inflow/outflow, or (3) more large supply.

Given the use of the corporate bond market for dividends and share repurchases, further equity price pullback would most likely lead to further corporate bond supply.

US Equity Correlation to Overall US Credit Spreads

US equities and credit markets correlated directionally for a second straight trading day and the 11th trading day in 17. 2025 remains the second-lowest directional correlation year for USD credit and equities. 2011 was the lowest correlation, at just 70.7% of the overall trading days when equities and corporate bond spreads closed in the same direction. Equities and credit spreads have now failed to move in the same direction in 28% of all 2025 trading days. The statistical average of directional correlation between the S&P 500 and US credit spreads is close to 80% over the past 33 years, with a range of 74% to 83%.

G – 255 issuer news

Nissan Motor Co.(NSANY Ba2/BB attractive short credit / equity) has agreed to sell its global headquarters in Yokohama for ¥97 billion to a group sponsored by Minth Group. The transaction is part of a 20-year sale and leaseback agreement, and Nissan will book a net gain of about ¥74 billion ($600mm).

• Attractive Long Indicators: 56, -16 from Wednesday and -48% below the 200-day moving average of all model long trade indicators.

• Attractive Long Market Cap accounts for: 30% of all undervalued Systematic Credit capital.

• Attractive Short Indicators 611, +128 from Wednesday and +21% above the 200-day moving average of all model short trade indicators

• Attractive Short Market Cap accounts for: 39% of all overvalued Systematic Credit Capital

Systematic Portfolio Trading Model Indicators

• Prioritize Long Positions: Target deleveraging new issues with attractive valuations, focusing on 5-year maturities.

• Short Positions: Target releveraging issuers trading at the deepest discount from their model avoid point, avoiding 7-year maturities due to low attractiveness.

• Replace Longs: Swap long positions that have reached their avoid trading level.

• Portfolio Trading Hurdle: Maintain a 1:1 long-to-short ratio once the 67.5% long position threshold is reached.

• Current Status: Add new supply trades where the issuer is deleveraging; add new issue bonds where spreads widened by +2 basis points.

• Current Status of Trading Indicators: Last week, one short trade and two long trades reached their avoid trading level. The trading model added three long indicators.

Systematic Credit Trading Strategy – November 6, 2025:

• Closed Positions: United Health (A2/A) UNH 3.05 05/15/41 short trading indicator reached its avoid trading level Friday. John Deere Cr. (A2/A) DE 5.45 01/16/35 short trading indicator reached its avoid trading level Monday. BP (A2/A-) BPLN 3.06 06/17/41 reached short trading indicator its avoid trading level Tuesday. Citicorp (A3/BBB+) C Float 09/11/31 long trading indicator reached its avoid trading level Wednesday.

• Enter New Longs: The model added new issues Philip Morris (A2/A-) PM 4 1/4 10/29/32 and Lloyds Bank (Baa3/BBB-) LLOYDS 6 5/8 PERP as long trade indicators. Lloyds Bank (A3/A-) LLOYDS Float 11/04/31 was added by the trading model as another long trade indicator on Tuesday. The trading model added Meta (AA3/ AA-) META 4 7/8 11/15/35 and META 5 1/2 11/15/45 new supply long trade indicators on Friday.

• Enter New Short Trades: The trading model added General Motors Financial (Baa2/BBB) GM 2.7 06/10/31 (short indicator) post new GM supply last week. The trading model added Cigna (Baa1/A-) CI 2.4 03/15/30 and HCA (Baa2/BBB-) HCA 3 5/8 03/15/32 as short trade indicators Monday.

Monitor Trade Position Composition:

• Track the percentage of long positions relative to the total portfolio.

• If replacing long positions that have reached their avoid trading level pushes the portfolio above the 65% long hurdle, initiate short positions in releveraging issuers (avoiding 7-year maturities) at a 1:1 ratio for additional long positions.

• Review: Reassess portfolio balance after today's fund flow data to ensure alignment with the systematic strategy.

• Look for individual bond indicators to change overnight: Historic trading levels are leading to overnight adjustments to long, short and avoid indicator levels.

Wednesday's Basket Trade Long/Short Ratio: 70%

Our systematic 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

New Trade Indicators Wednesday: The Citicorp (A3/BBB+) C Float 09/11/31 reached its avoid trading level.

Systematic Long/Short Basket Trade Performance Report (January 4, 2025 – November 6, 2025)

Performance Summary: Total Trades: 184 (1% of total trades).

• Long Indicators: 124/144 reached avoid-trading levels, tightening by -9.22 bp.

• Short Indicators: 32/39 reached avoid-trading levels, widening by +5.73 bp.

• Remaining Longs: 20 widened by +.64 bp.

• Remaining Shorts: 9 tightened by -10.91 bp.

• Average Spread Movement: ± 6.64 bp in the recommended direction.

• Success Rate: 87% of indicators reached avoid-trading levels, which is slightly below normal.

• Average trade holding period: 20.4 trading days) below normal
  

  Bank of America BAC / A1/A- - attractive short credit / long equity Trading indicator 5 Nov.

Bank of America: 70 bonds comprising $184 billion of debt market cap. The equity trades +6% to its attractive long trading level. While the corporate capital structure (all 4 levels) is only seen as trading at extreme levels (colored red) at the Bank of America Bank level (only 3 bonds outstanding) and the front end (3nc2 to 6nc5) of the bank Holdco level (please see page 7), the remainder of the BAC debt capital structure (belly and long end of the Holdco, subordinated, and Perps) is seen as overvalued (colored in orange) as of last night. The model runs this particular calculation and trade indicator 12,000 times per day. These are last night's indicators.

Systematic Credit Trading Big 6 Sector Indicators November 5

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.