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.
Corporate credit has largely recovered from the terrible slump prompted by COVID-19. In general, corporate bond yield spreads are now the narrowest since February 2020.
COVID-19 will determine the near-term fate of the U.S. and world economies in 2021. If resurgent coronavirus infections prompt another broad shutdown of businesses, US real GDP will again contract sequentially. At the other extreme, a vaccine for the virus would significantly enhance 2021's outlook.
Republican control of the U.S. Senate and Democrat control of the House effectively precludes radical changes in the U.S. tax and regulatory framework.
The latest sell-off of equities anticipates a meaningful widespread drop in business sales brought on by COVID-19's second wave.
U.S. business activity may have lost some of its earlier unsustainable momentum, but the ongoing growth of expenditures weighs a renewed contraction of sales and profits.
Though unresolved issues stemming from COVID-19 warn of substantial tail risk, investors have become more tolerant of above-average risk according to the recent narrowing of corporate bond yield spreads.
The declining trend of initial state unemployment claims persists.
The Congressional fight over additional fiscal stimulus goes on. The Democrats propose an additional $2.2 trillion of deficit spending, while the Republicans have offered $1.6 trillion
Corporate bond issuance by U.S. companies continues to boom.
The default research analysts at Moody's Investors Service have lowered their baseline estimates for the U.S. high-yield default rate.