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Fallen Angels Bond

Categoria — Tipi di obbligazioni

Fallen Angels Bond is an investment instrument that has a low credit rating and high risk compared to other bonds. The name "Fallen Angels" emphasizes the high level of risk associated with this type of bond.

Fallen angel bonds have been downgraded by one of the largest rating agencies, which include Standard & Poor's, Fitch, and Moody's Investors Service. These can be corporate, municipal, or sovereign bonds.

The main characteristic of Fallen Angels Bonds is the issuer's low credit rating. This means that the company issuing such bonds has an unstable financial position and a higher probability of default. The low credit rating reflects analysts' opinion about the issuer's reliability and its ability to pay interest on bonds and repay the principal amount at maturity.

The main reason for the downgrade is the decline in income, which jeopardizes the ability of issuers to pay interest on their bonds. If a decline in earnings is combined with an increase in debt levels, the likelihood of a downgrade sharply increases. This forces many portfolio managers to sell their positions, since their regulatory rules may prohibit holding them, especially funds that are limited to holding only investment-grade debt obligations.

However, there are even fallen angel bond funds for investors who see investment opportunities in them. Some funds invest only in bonds that have been downgraded.

It is also worth noting that investing in Fallen Angels Bonds carries significant risks. In case of default of the issuer, investors may lose their investments. Therefore, before deciding to invest in Fallen Angels bonds, investors are advised to conduct thorough research of the issuing company to understand its financial condition, development prospects, and ability to pay interest and principal on the bonds.

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