Published Tue, 12 Nov 2019 06:45:00 -0500 on Seeking Alpha
Co-produced with The Belgian Dentist
On the back of my recent article on the potential opportunity of sliding down the credit scale to get higher returns, I also realize that investing in CCC credit could be too daunting for many investors, even if the risk-adjusted returns might look more attractive than the BB names.
Another option is to focus on individual bonds that started out being investment-grade but have been downgraded into junk-bond territory. These bonds are called fallen angels and they can also be good ways to diversify your bond portfolio.
Fallen angels Financial market participants are fond of attaching colourful names and phrases to financial market phenomena. One of the more imaginative terms that can be heard in the fixed income markets of the world is “fallen angel.” In religious terms, a fallen angel is an angel that has been rejected from heaven because of behaviour unbecoming of an angel. The corporate bond markets of the world can be broadly categorised into two groups: Investment Grade on the one hand and High Yield on the other. Bonds that are categorised as “investment grade” are deemed to have been issued by governments and corporations that are highly unlikely to default. Investment grade bonds carry a BBB- or higher rating from Standard & Poor’s and/or a Baa3 rating or higher from Moody’s ratings services.
High-yield bonds are issued by governments and corporations that have a credit rating below BBB- and/or Baa3.... Read more