Fixed-income fallen angels, rising stars

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In the bond market, “rising stars” have persistently outperformed the greater high-yield market while on the path to ratings upgrades.

 

Companies' profitability and leverage get worse, and credit quality falls. Some are even downgraded to high yield — these are the "fallen angels."

There were more fallen angels in 2020 than any year prior. 

 

 

As the economy improves, so do corporate balance sheets. Some companies regain their investment-grade rating — these are the "rising stars." Identifying rising stars before the credit upgrade occurs means investors can benefit from the subsequent price appreciation.

The benefits of owning rising star bonds continue even after the credit upgrade. Most rising stars ultimately achieve a BBB rating and offer higher yields than bonds with better credit ratings.

 

Rising star bonds have historically outperformed the broader high-yield market over the six-month period before their credit upgrade and the investment-grade market in the six months after their upgrade.*

 

 

Blue star icon In the current environment, having the research resources to identify rising stars can be a key driver for success for fixed-income investors.

 

 

To learn more, read Finding opportunity with taxable bond rising stars.

 

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