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. 

Presentation Slides

781-455-creditedge-fallen-angel-webinar

 

622-362-xerox-creditedge-fallen-angel-webinar

Related Articles
Article

Weekly Market Outlook: Market Implied Ratings Differ on the Likely Direction of Baa3 Ratings

Baa3-grade issuers constitute the bottom rung of the investment-grade ratings ladder. Once a Baa3 rating is subject to a “fallen angel” downgrade to speculative-grade, investors who are mandated to hold only investment-grade obligations must sell the now high-yield debt.

July 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Steven Shields
Article

Weekly Market Outlook-Below-Trend Spreads Bank on Profits Growth, Lower Rates and Healthy Equities

Sequential declines by the Bureau of Economic Analysis' quarterly estimate of nonfinancial-corporate profits from current production, or core pretax profits, often reveal little about the current or future states of the business and credit cycles.

June 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Weekly Market Outlook: Global Collapse by Bond Yields Stems From Worldwide Slowdown

Both the corporate bond and equity markets responded positively to the latest drop by Treasury bond yields and the likelihood of at least two reductions of the federal funds rate during the remainder of 2019.

June 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Barbara Teixeira Araujo, Mark ZandiRyan Sweet, Steven Shields
Article

Weekly Market Outlook: Borrowing Restraint Likely Despite Lower Interest Rates

According to the Federal Reserve's “Financial Accounts of the United States”, first-quarter 2019's outstanding debt of U.S. nonfinancial corporations advanced by 8.1% year-over-year to a new record high of $9.926 trillion.

June 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Brendan Meighan, Steven Shields
Article

Weekly Market Outlook: The Fed Cured 1998's Yield Curve Inversion

The implied probability of a fed funds rate cut at the Federal Open Market Committee's July 31 meeting recently soared to 72% mostly in response to Jerome Powell's apparent willingness to heed the recessionary warning of a possibly persistently inverted yield curve.

June 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Weekly Market Outlook: Extended Yield Curve Inversion Would Presage Wide Spreads and Many Defaults

Since May 3, or just prior to the latest episode of trade-related stress, the market value of U.S. common stock had plunged by 5.7% as of May 29's close for a paper loss of $1.735 trillion.

May 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Faraz Syed, Barbara Teixeira Araujo, Ryan Sweet, Michael Ferlez
Article

Weekly Market Outlook: Business Debt's Mild Rise Differs Drastically from 2002-2007's Mortgage Surge

Fed Chairman Jerome Powell recently addressed the issue of business borrowing. In a May 20 speech, Mr. Powell suggested that, by itself, the new record high ratio of nonfinancial-corporate business debt to GDP is much less of a risk to systemic financial liquidity than was home mortgage debt's record high 100% of disposable personal income from 2007.

May 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Barbara Teixeira Araujo, Ryan Sweet, Steven Shields
Article

Weekly Market Outlook: Earnings Slump Would Unmask Dangers of High Leverage

According to the Federal Reserve's “Financial Stability Report” of May 2019, not only has the outstanding debt of nonfinancial businesses outpaced nominal GDP during the past 10 years (or since 2008), but the growth of debt has been skewed toward riskier firms.

May 2019 Pdf John Lonski, Yukyung ChoiKatrina Ell, Barbara Teixeira Araujo, Mark ZandiRyan Sweet, Michael Ferlez
Article

Dealing With Fallen Angel Risk

We test the early warning power of the CreditEdge Deterioration Probability (DP) metric for Fallen Angel downgrades.

Article

Weekly Market Outlook: Credit May Again Outshine Equities at Divining Markets' Near-Term Path

During a week of heightened equity market volatility, the corporate credit market was relatively calm. As of May 8's close, the credit market had yet to sense much collateral damage from an intensification of the trade conflict between China and the U.S.

May 2019 Pdf John Lonski, Yukyung ChoiKatrina EllSteven Cochrane, Barbara Teixeira Araujo, Ryan Sweet, Steven Shields
RESULTS 1 - 10 OF 131