Moody’s Analytics Webinar: Topics@CreditEdge – Dealing With Fallen Angel Risk
Fallen Angel risk results from the possibility and price impact of bond downgrades from investment grade (IG) into high yield (HY).
In this webinar, Moody’s Analytics researchers Samuel Malone, Ph.D. and Yukyung Choi present evidence on the early warning power of the CreditEdge Deterioration Probability metric for predicting Fallen Angel downgrades.
They find that Deterioration Probability quintile portfolios exhibit monotonically increasing rates of Fallen Angel downgrade frequencies, and that historical under performance by high Deterioration Probability versus low Deterioration Probability bond portfolios is exacerbated during market downturns. These findings should be of interest to fixed income investors, as the price deterioration experienced by bonds in the year prior to a Fallen Angel downgrade event is significantly greater than the price deterioration experienced by bonds of future IG downgrades on average.
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