They call ’em “Fallen Angels.” They’re bonds that the credit agencies demote from investment grade to high yield.
Unfortunately, there’s nothing angelic about a wave of downgrades happening all at once. And that’s what transpires in recessions.
For example, in the first quarter of 2020 alone, $150 billion in “high-quality” IG bonds have been re-rated as HY, or “junk.” Goldman Sachs analysts anticipate $550 billion more in fallen angel activity over the next two quarters, bringing the total to $700 billion.
Putting the tsunami into perspective, 10% of the IG universe must get dumped from