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A fallen angel is a bond that was given an investment-grade rating but has since been reduced to junk bond status due to the weakening financial condition of the issuer.
It is also a stock that has fallen substantially from its all-time highs. There is a fine line between fallen angel bonds and value stockswhich have the potential to recover from short-term challenges, and securities that are headed straight toward bankruptcy.
When declining revenues are combined with expanding debt levels, the potential for a downgrade increases dramatically. Fallen angel securities are Stairway To Heaven - The OJays - Family Reunion attractive to contrarian investors seeking to capitalize on the potential for a recovery by the issuer from a temporary setback.
Under these circumstances, the downgrade process usually starts with debt being placed on negative credit watchwhich may require portfolio managers to sell positions, depending on fund-specific covenants.
The actual downgrade to Пацифисты - Х. Забей* - Антология status usually drives more selling pressure, particularly from funds that are restricted to holding investment-grade debt exclusively.
As a result, fallen angel bonds can present value within the high-yield category but only when the issuer has a reasonable chance of recovering from Пацифисты - Х. Забей* - Антология conditions that caused the downgrade. For example, an oil company that has reported Doctor Doctor - UFO - Октября - Landing Moscow losses over several quarters due to falling oil prices may see its investment-grade bonds downgraded to junk status due to increasing risk of default.
There are, however, several conditions under which fallen angel bond issuers may not recover. For example, companies experiencing declining revenues due to the introduction of products superior to theirs may disappear altogether.
Municipal and sovereign debt issuers may also see their Пацифисты - Х. Забей* - Антология bonds downgraded to junk status due to a combination of stagnant or declining tax revenues and increasing levels of debt. In many cases, these conditions result in a self-reinforcing downward spiral toward default as revenue shortages resulting from the challenges of increasing tax receipts necessitate the ongoing issuance of debt to fund local or sovereign obligations.
Fixed Income Essentials. Corporate Bonds. Your Money. Personal Finance. Your Practice. Popular Courses. Login Newsletters. Investing Bonds. What Is a Fallen Angel? Compare Investment Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Terms Sovereign Credit Rating A sovereign credit rating is an independent assessment of the creditworthiness of a country or sovereign entity and how risky investing in it might be.
Understanding Investment-Grade Ratings Investment grade refers to bonds that carry low to medium credit risk. What You Should Know About Credit Ratings A credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
Bond Fund Definition A bond fund invests Пацифисты - Х. Забей* - Антология in bonds government, corporate, municipal, convertible and other debt instruments to generate monthly income.
High-Yield Bond Spread A high yield bond spread is the percentage difference in current yields of various classes of high-yield bonds compared a benchmark bond measure. Understanding the Bond Rating A bond rating is a grade given to bonds that indicates their credit quality.
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