{"id":140770,"date":"2026-06-05T13:40:32","date_gmt":"2026-06-05T17:40:32","guid":{"rendered":"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/financial-services\/how-fallen-angels-can-turn-credit-downgrades-into-opportunity\/"},"modified":"2026-06-05T13:42:54","modified_gmt":"2026-06-05T17:42:54","slug":"how-fallen-angels-can-turn-credit-downgrades-into-opportunity","status":"publish","type":[3762],"link":"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/financial-services\/how-fallen-angels-can-turn-credit-downgrades-into-opportunity\/","title":{"rendered":"How fallen angels can turn credit downgrades into opportunity"},"content":{"rendered":"<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a2435d049c2f'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-7\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer bbg-spacer--lg\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p class=\"small\"><strong><span style=\"font-size: 14px; letter-spacing: 1px; color: #0062dd;\">ARTICLE<\/span><\/strong><\/p>\n\n<\/div>\n<div\n    class=\"bbg-spacer bbg-spacer--sm\"\n    >\n<\/div>    <h1 class=\"bbg-metadata bbg-metadata--title\">How fallen angels can turn credit downgrades into opportunity<\/h1>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 50px !important\"\n    >\n<\/div>    <ul class=\"bbg-categories_list\">\n                    <li>\n                <a href=\"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/category\/financial-services\/\" rel=\"category tag\">\n                    Financial Services\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/category\/markets\/\" rel=\"category tag\">\n                    Markets\n                <\/a>\n            <\/li>\n            <\/ul>\n<\/p>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-5\"\n    style=\"\"\n    >\n    <div id=\"\" class=\"wpb_content_element bbg-single-image align-left\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"1200\" height=\"800\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/429761774resiz.jpg\" class=\"bbg-single-image__image attachment-full\" alt=\"Stock chart\" title=\"Stock chart\" \/>\n        \n            <\/figure>\n<\/div>\n\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a2435d053a9d'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-6 bbg-column--m-width-6\"\n    style=\"\"\n    >\n    <p>    <p class=\"bbg-metadata bbg-metadata--date\">June 5, 2026<\/p>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><strong>Bloomberg Professional Services<\/strong><\/p>\n\n<\/div>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2 bbg-column--valign-middle bbg-column--m-width-2 bbg-column--s-padding-right-2\"\n    style=\"\"\n    >\n    <div class=\"bb-tts\"\n\tdata-selector=\"main\"\n\tdata-label=\"Speak this page\"\n\tdata-custom-play=\"Play\"\n\tdata-custom-pause=\"Pause\"\n\tdata-custom-stop=\"Stop\"\n\tdata-overlay=\"false\"\n\tdata-invert=\"false\"\n\tdata-no-time=\"false\"\n\tdata-no-button-text=\"false\"\n\tdata-one-button=\"true\"\n\tdata-one-style=\"true\"\n\tdata-hide-stop=\"true\"\n\tdata-voice=\"Gordon\"\n\tdata-pitch=\"1\"\n\tdata-speed=\"1\"\n\tdata-align=\"flex-start\"\n>\n<\/div>\n\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6a2435d0561b3'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8 bbg-column--has-bg-color\"\n    style=\"background-color:#e6f3ff;border-radius: 16px 16px 16px 16px;\"\n    >\n    <div class=\"wpb_content_element bbg-card  bbg-card-custom bbg-card-text-black\" id=\"card_1\" data-card_type=\"no_image\">\n      <style>#card_1 .bbg-card__innerwrapper {background-color: #e6f3ff;}#card_1 .bbg-card__innerwrapper {\n\tborder: 1px solid #e6f3ff !important;\n\t}#card_1:hover .bbg-card__innerwrapper {\n\tborder: 1px solid #e6f3ff !important;\n\t}#card_1 .bbg-card__innerwrapper {\n\tpadding: calc(var(--brand-large-padding, 40px) - 1px) !important;\n\t}#card_1 .bbg-card__innerwrapper .bbg-card__title {\n\tcolor: #000000 !important;\n\t}#card_1 .bbg-card__innerwrapper .bbg-card__content,#card_1 .bbg-card__innerwrapper .bbg-card__content p  {\n\tcolor: #000000 !important;\n\t}#card_1.bbg-card_hasImage .bbg-card__innerwrapper{padding-top: calc(var(--brand-default-padding, 16px) - 1px);padding-left: calc(var(--brand-default-padding, 16px) - 1px);padding-right: calc(var(--brand-default-padding, 16px) - 1px);}<\/style>\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n              <div class=\"bbg-card__eyebrow\" style=\"color: #000000\">KEY TAKEAWAYS<\/div>\n      \n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><\/p>\n<ul>\n<li><span class=\"TextRun SCXW50947520 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW50947520 BCX0\">Fallen angels are bonds downgraded from investment grade to high yield, often creating forced selling and potential credit dislocations.<\/span><\/span><\/li>\n<li><span class=\"TextRun SCXW62769535 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW62769535 BCX0\">Historical data shows fallen angels can recover after downgrade events as technical pressure eases and high yield investors enter the segment.<\/span><\/span><span class=\"EOP SCXW62769535 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<li><span class=\"TextRun SCXW60923877 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW60923877 BCX0\">Enhanced fallen angel strategies may help investors target post-downgrade recovery by emphasizing more recently downgraded corporate bonds.<\/span><\/span><span class=\"EOP SCXW60923877 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p>\n<\/div>\n          <\/div>\n\n      <\/div>\n\n  <\/div>\n\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6a2435d058c6a'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span class=\"TextRun SCXW212508665 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW212508665 BCX0\">Fallen angels, corporate bonds that were originally issued as investment grade and later downgraded to high yield, can offer a useful lens into how investors think about credit downgrades not only as a risk, but also as a potential source of opportunity.\u00a0<\/span><\/span><span class=\"EOP CommentStart CommentHighlightPipeRest PointComment CommentHighlightRest SCXW212508665 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span class=\"TextRun SCXW235639098 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW235639098 BCX0\">While downgrades are typically associated with deteriorating credit quality of the issuing entity, they can also create market dislocations driven by the technical selling pressures that occur because of the downgrade.\u00a0<\/span><\/span><span class=\"EOP SCXW235639098 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:278}\">\u00a0<\/span><\/p>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a2435d05a1cf'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-3\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer bbg-spacer--sm\"\n    >\n<\/div><hr class=\"bbg-separator bbg-separator-1\" style=\"height:1px;\" \/>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 32px !important\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p class=\"small\"><strong><span style=\"font-size: 14px; letter-spacing: 1px;\">PRODUCT MENTIONS<\/span><\/strong><\/p>\n\n<\/div>\n\n<div\n  id=\"cta_6856357645529171884\"\n  class=\"wpb_content_element bbg-cta no-icon\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p left\">\n      <a\n        class=\"bbg-cta-link link\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/products\/indices\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"Bloomberg Indices\"\n        >\n                      Bloomberg Indices\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n<div\n    class=\"bbg-spacer bbg-spacer--sm\"\n    >\n<\/div><div\n    class=\"bbg-spacer\"\n        style=\"height: 32px !important\"\n    >\n<\/div><hr class=\"bbg-separator bbg-separator-1\" style=\"height:1px;\" \/>\n<\/p>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-1\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-6\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span class=\"TextRun SCXW64461061 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW64461061 BCX0\">Such<\/span><span class=\"NormalTextRun SCXW64461061 BCX0\">\u00a0dislocations may create potential attractive entry points, especially in the period\u00a0<\/span><span class=\"NormalTextRun SCXW64461061 BCX0\">immediately<\/span><span class=\"NormalTextRun SCXW64461061 BCX0\">\u00a0following the downgrade. As investors navigate the credit landscape for differentiated income and yield, fallen angels present themselves as an opportunity set within a fixed income portfolio.<\/span><span class=\"NormalTextRun SCXW64461061 BCX0\">\u00a0<\/span><\/span><span class=\"EOP SCXW64461061 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:1,&quot;335551620&quot;:1,&quot;335559685&quot;:0,&quot;335559737&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:278}\">\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The opportunity may be especially pertinent as the higher-for-longer narrative has gained renewed relevance, with gepolitical tensions pushing oil prices higher, adding to <\/span><a href=\"https:\/\/www.bloomberg.com\/news\/features\/2026-03-03\/iran-war-oil-price-surge-put-global-economic-recovery-at-risk\"><span style=\"font-weight: 400;\">inflation concerns<\/span><\/a><span style=\"font-weight: 400;\"> and reducing expectations for near-term rate cuts. <\/span><\/p>\n<p><span class=\"TextRun SCXW87677579 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW87677579 BCX0\">This article looks at how investors can assess fallen angels within a fixed income portfolio, how downgrade-driven selling pressure can create price dislocations and why the post-downgrade recovery period has historically shaped the segment\u2019s return profile.<\/span><\/span><span class=\"EOP SCXW87677579 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--margin-top-compact bbg-row--margin-bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6a2435d05d763'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <div\n    class=\"bbg-column\"\n    style=\"\"\n    >\n    <div class=\"bbg-interstitial\" aria-label=\"interstitial\" tabindex=\"0\">\n\t<style>\n\t\t.bbg-interstitial #card_2.bbg-card_hasCta{\n\t\t\tbackground: url(https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Interstitial_bg.png);\n\t\t\t\tbackground-repeat: no-repeat;\n\t\t\t\tbackground-position: center center;\n\t\t\t\tbackground-size: cover;\n\t\t\tpadding: 104px;\n\t\t\t\n\t\t\t\n\t\t}\n\t\t.bbg-interstitial #card_2.bbg-card_hasCta .bbg-card__content, .bbg-interstitial #card_2.bbg-card_hasCta .bbg-card__content p{\n\t\t\tcolor:white;\n\t\t}\n\t\t@media (max-width: 768px) {\n\t\t\t.bbg-interstitial #card_2.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 32px;\n\t\t\t}\n\t\t}\n\t\t@media (max-width: 480px) {\n\t\t\t.bbg-interstitial #card_2.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 18px;\n\t\t\t}\n\t\t}\n\t<\/style>\n\t<div class=\"wpb_content_element bbg-card  bbg-card-dark bbg-card_hasCta has_interstitial\" id=\"card_2\" data-card_type=\"no_image\">\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n      \n                      <h3 class=\"bbg-card__title\">Tailored indices insights and invitations in your inbox<\/h3>\n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><p>Sign up<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_934698685634257361\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/explore\/indices-insights-tailored-to-your-interests\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a2435d060393'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>What makes fallen angels different from original-issue high yield bonds?<\/h2>\n<p><span class=\"TextRun SCXW35269603 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW35269603 BCX0\">Fallen angels start in the investment grade market before moving into high yield, which can give them a different issuer profile,\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">structure<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0and credit quality from original-issue high yield\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">bonds.<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">They<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">have historically represented a broad array of sectors, with\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">r<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">etail and\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">e<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">nergy the<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0most prevalent<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0during<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">heightened\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">downgrade cycles like in\u00a0<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">the summer of 2020.<\/span><span class=\"NormalTextRun SCXW35269603 BCX0\">\u00a0<\/span><\/span><span class=\"EOP SCXW35269603 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Another common trait of fallen angel bonds is that they are typically well-known household names like Macy\u2019s, Kohl\u2019s, Nissan and Centene, as they tend to be centered around more cyclical industries that experience headwinds during market downturns. The market value of fallen angels reached a high of $287bn at the end of 2020 and currently resides at $85bn, based on Bloomberg data as of Bloomberg LP as of April 30, 2026. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Notable as well is that because fallen angels are originally issued as investment grade, their structural features can be quite different from their new high yield peers. Fallen angel bonds tend to have longer durations and lower fixed rate coupons compared to original-issue high yield bonds. The majority of fallen angel bonds are BB, the highest quality category of high yield.<\/span><\/p>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>How downgrade pressure can shape returns<\/h2>\n<p><span style=\"font-weight: 400;\">As the market anticipates the downgrade of a fallen angel bond, investment grade (IG) managers typically sell out of these bonds prior to the downgrade event. Many managers are constrained by IG mandates and are precluded from holding HY securities in their portfolios or must track and IG index that will remove the fallen angel upon downgrade. This forced selling pressure has historically tended to overshoot the fundamental value of the fallen angel. \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A look at the price behavior of fallen angel bonds in the months preceding the downgrade and following the downgrade shows significant underperformance leading up to the downgrade, followed by outperformance in the months following the downgrade.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The sharp price depression occurring prior to the downgrade reflects the market\u2019s anticipation of the downgrade combined with the notion that ratings agencies can lag with their official notices, along with the quantity and velocity by which the IG holder must remove these names from their holdings by mandate. Many view the bonds at this point as being \u2018oversold\u2019. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">As can be seen in Figure 1, the bonds begin recovering in price terms in the months following the downgrade, most sharply in the immediate months following downgrade.\u00a0 <\/span><\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"2114\" height=\"1446\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade.png\" class=\"bbg-single-image__image attachment-full\" alt=\"Figure 1-Fallen Angels Performance Relative to Peers Before and After Downgrade\" title=\"Figure 1-Fallen Angels Performance Relative to Peers Before and After Downgrade\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade.png 2114w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade-552x378.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade-800x547.png 800w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade-768x525.png 768w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade-1536x1051.png 1536w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade-2048x1401.png 2048w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-1-Fallen-Angels-Performance-Relative-to-Peers-Before-and-After-Downgrade-158x108.png 158w\" sizes=\"auto, (max-width: 2114px) 100vw, 2114px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span style=\"font-weight: 400;\">In addition to the technical price correction, there are also fundamental reasons for fallen angels being supported post downgrade. As mentioned, most fallen angels are large brand names that have strong access to the capital markets, better than their HY peers, allowing their operations and business to continue to be funded. As they were IG before, they also typically operate with incentive to get upgraded back into high quality.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The pattern of pre-downgrade weakness and post-downgrade recovery that has repeated itself historically has contributed to a differentiated return profile of fallen angels as compared to the broader high yield market (Figure 2). Across multiple market cycles, fallen angels have historically outperformed the high yield market as well as its BB-rated cousin, presenting itself as a compelling opportunity for many. <\/span><\/p>\n<h2>Fallen angels &#8211; the timing effect<\/h2>\n<p><span style=\"font-weight: 400;\">While fallen angels are a compelling segment within high yield, the timing of when the premium occurs is notable. As mentioned, much of the price appreciation occurs in the months immediately following downgrade, the phase in which the technical selling eases and high yield investors begin buying.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400;\">A greater emphasis on the newer fallen angels may provide more targeted exposure to the premium associated with the post-downgrade recovery. The Bloomberg US High Yield Enhanced Fallen Angels Index was designed with this dynamic in mind, allocating a greater weight to the more recently downgraded bonds, and less weight to the \u2018older\u2019 fallen angels. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Specifically, the index tilts the bonds downgraded within the last 12 months (on a rolling basis) by 1.5, enhancing the exposure to the price recovery that occurs shortly after downgrade. Additionally, the Index reduces the allocation to fallen angels that have been downgraded 24 months or longer, by a factor of 0.5.\u00a0 <\/span><\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"1916\" height=\"1682\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026.png\" class=\"bbg-single-image__image attachment-full\" alt=\"Figure 2-Total Return Comparison Across Fallen Angels and High Yield Between 2015 and 2026\" title=\"Figure 2-Total Return Comparison Across Fallen Angels and High Yield Between 2015 and 2026\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026.png 1916w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026-552x485.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026-800x702.png 800w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026-768x674.png 768w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026-1536x1348.png 1536w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Figure-2-Total-Return-Comparison-Across-Fallen-Angels-and-High-Yield-Between-2015-and-2026-123x108.png 123w\" sizes=\"auto, (max-width: 1916px) 100vw, 1916px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span style=\"font-weight: 400;\">The Bloomberg US High Yield Enhanced Fallen Angels Index seeks to capture the timing effect associated with fallen angels while also enhancing the phase that has been historically most prominent.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400;\">As can be seen from Figures 2, while the investment case for traditional fallen angels remains, we observe that the enhanced fallen angels segment offers additional outperformance over the period shown. However, past performance is not indicative of future results and multiple factors may have contributed to the difference in performance.\u00a0 <\/span><\/p>\n<h2>\u00a0Capturing the post-downgrade recovery<\/h2>\n<p><span style=\"font-weight: 400;\">Fallen angels represent a unique segment of the credit markets, coming from investment grade and now residing in high yield. The nature of credit investing often drives outsized selling of these bonds as they approach downgrade, deeming them \u201coversold\u201d.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This dynamic has tended to create attractive entry points for high yield investors looking to capture the historically observed price recovery that occurs post downgrade. By emphasizing the immediate period following the downgrade, the Bloomberg US High Yield Enhanced Fallen Angels Index seeks to more directly capture the timing effect that has historically characterized this asset class.\u00a0 <\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Invesco has launched the Invesco Bloomberg Enhanced Fallen Angels ETF, tracking the Bloomberg US High Yield Enhanced Fallen Angels Index (I40386), under the ticker IFLN. <\/span><\/li>\n<\/ul>\n\n<\/div>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-6a2435d064177]::before {\n\t\t\t\tbackground-color: #f4f4f9;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--f4f4f9 text--black bbg-row--full-bg-bleed\" data-anchor='row-6a2435d064177'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column 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opportunities.<\/p>\n","protected":false},"author":1933,"featured_media":124027,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"template-article.php","format":"standard","meta":{"_yoast_wpseo_primary_category":"457","footnotes":""},"categories":[457,453],"tags":[547,3842],"series":[],"class_list":["post-140770","post","type-post","status-publish","format-standard","hentry","category-financial-services","category-markets","tag-indices","tag-indices_2026","type-article"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.11 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How fallen angels can turn credit downgrades into opportunity | Insights | Bloomberg Professional Services<\/title>\n<meta name=\"description\" content=\"Fallen angels, corporate bonds initially issued as investment grade and later downgraded to high yield, offer insight into how investors view credit downgrades not only as risks, but also as potential 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