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Industry Voice: The tailwinds lifting falling angels


Industry Voice: The tailwinds lifting falling angels
Fallen angels have historically delivered excess returns. Here’s how.
BNY Mellon Investment Management
In theory, fallen angels and Ba-rated bonds (the highest quality in the high yield category) should generate comparable performance. There is considerable crossover between the two segments: 90% of fallen angel bonds are currently rated Ba, and therefore by definition the Ba bucket contains a notable percentage of fallen angels. The theory gains further credence when comparing option-adjusted spreads (OAS), which are quite similar.
The similarities do not extend to performance, however.
Historically, fallen angels have delivered greater excess returns (total returns minus duration-matched Treasury returns) than both Ba-rated bonds and the broad high yield market. ....

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