DHC - Fallen Angels: A Preponderance Of REITs

2024-02-17 02:29:00 ET

Summary

• The positive momentum gained by fallen angels in the final quarter of 2023 carried over into January, surpassing broad high yield by 56bps.
• Sector-specific weakness may continue to manifest in downgrades, and even a modest slowdown in growth could lead to a meaningful increase in fallen angel volume given the high level of BBB- debt outstanding.
• Retail has emerged as the sector with the highest exposure, surpassing Energy, which experienced a reduction as a Southwest Energy issue was removed due to its imminent maturity within the next 12 months.

The “January effect” continues into 2024, as fallen angels outperformed broad high yield; real estate exposure in the Index grows as the sector continues to struggle.

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