Is there a current risk of downgrades and fallen angels?

  • 19 October 2022 (3 min read)

Audio recording transcript:

So ratings have been quite a dynamic topic over the last several years. So clearly there was the post COVID shock with massive waves of downgrades and fallen angels, and, subsequently, we've seen the reverse and we've seen massive amounts of rising stars, you know, the T mobile, the Netflix, you know, HCA’s just to name a few that have occurred this year.

So, on average, there's still more upgrades and downgrades within high yield, but the pace has slowed, certainly, with the economic outlook. I think that the adjacent markets are something to watch for the ratings trajectory and what I mean by that is, I think, one of the more interesting places to look is the leverage loan market. So leveraged loans, the market has grown substantially and a large part of the leveraged loan market is owned by CLOs.

So CLOs have various over-collatorisation tests, among others, and they have limits on CCC buckets. So if you see a large wave of downgrades, if you did get material slowing within the US economy that resulted in downgrades of single B and low single B loans to CCC's, you could see a technical selling pressure within loans that might have a knock on effect to high yield, just being an adjacent market.

We've not seen a lot in the way of fallen angel risk yet. I think the BB's, the now BB's, many of which were formerly BBB's, there still seems to be a rising star trend that’s overwhelming any of the fallen angels.

Investment themes

High Yield Bonds

High yield investing has the potential to offer risk-aware investors an attractive source of income.

Find out more

Related Articles

Fixed Income

How to capitalise on euro credit opportunities in evolving markets

  • by AXA Investment Managers
  • 13 May 2024 (5 min read)
Fixed Income

Euro Long-Term Credit

  • by Benoit Guerineau, Pauline Parent
  • 09 May 2024 (5 min read)
Fixed Income

US High Yield Comments

  • by AXA Investment Managers
  • 10 April 2024 (3 min read)


    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX.

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Back to top