With high-yield bonds, fixed-income investors are more worried about default rates. According to Edward Altman’s 30-year history of fallen angels, this fixed-income category has shown a percentage below the average annual default rate for original-issue high-yield bonds. Original-issue high-yield bonds have somewhere around a 4.5% annual default rates on average while fallen angels are closer to 3.6%.
High-yield default rates have also remained low over the past year, or below 1%. Moreover, the ratio of fallen angels becoming investment-grade again compared to original-issue high-yield is on the rise as well.
“So, they’ve defaulted less on average, historically, and ascended to investment-grade at a higher rate on average as well,” Rodilosso said.
Looking ahead, Rodilosso warned that the fallen angels category has a higher sensitivity to changes in interest rates than most speculative-grade debt. Fallen angels typically have longer durations since many were originally investment-grade and issued with longer than 10-year maturities. ANGL has a 5.57 year duration.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.