What are fallen angel bonds?
A Fallen Angel Bonds is an investment-grade corporate bond that was originally issued with an investment-grade rating but has since been downgraded to a high-yield (non-investment grade) rating due to adverse circumstances at the issuer.
When analyzing a Bonds, investors need to pay attention to the upgrade or downgrade risk. While it's easy to tell if a bond will be upgraded or downgraded from its current status, it can be difficult to predict if a bond will make a full recovery back to its original investment-grade status.
Investors need to understand Fallen Angel meaning if they plan to invest in these types of bonds. With fallen angel bonds in their portfolio, they need to do their research on what factors influence an upgrade or downgrade of a bond before making any decisions regarding their existing holdings.
Fallen angel bonds are risky investments, and the potential for return on investment is not guaranteed. As an investor, you must make an educated decision based on your risk tolerance, financial situation and other factors before investing in these securities. Investors should also be aware that there's no guarantee that fallen angel bonds will ever recover their face Value as they're considered to be lower quality assets than those issued by companies with stable earnings streams.
In other words, fallen angels carry more risk than traditional high-yield debt instruments like junk bonds or convertible notes because they lack the same funds to pay off the debt if things go wrong. But, they can still make a partial recovery or even fully complete their payment schedule depending on the number of new investors during bankruptcy proceedings or after liquidation has come through successfully
What is the fallen angel index?
The Fallen Angel Index tracks the performance of fallen angels, which is a group of high yield bonds that are downgraded to below investment grade. The index is composed of a basket of these bonds and it’s based on the concept of a literal fallen angel. It’s an efficient way for investors to invest in this type of debt because it reduces their risk exposure by spreading their money across many different names at once.
Characteristics of a fallen angel bond
A fallen angel bond is a high-yield debt security issued by companies that have been downgraded by rating agencies. The issuer must have a credit rating of BB or lower for it to be considered a fallen angel bond. The yield on the security will be higher than the current market rate for similar securities because of its riskier nature, which makes it more attractive to investors who want more return on their investment but are willing to accept extra risk in exchange for that reward.
Fallen angel bonds still payout at their original rate, but the bond issuer has issued warrants for a future date when it will be able to redeem them. These warrants have a fixed strike price, which means that if you hold onto your fallen angel bond until then, you can redeem it and receive your original investment in total (minus any interest or dividends).
Difference between a fallen angel and rising star bonds
Fallen angel bonds are downgraded after they have been issued while rising star bonds are upgraded. The difference between the two is that fallen angel bonds are riskier, while rising star bonds are less risky. This is because you could be stuck with an investment that yields much lower than what was originally promised. Rising star bonds also tend to be more volatile; this means that their price fluctuates with market conditions and expectations for future performance, which makes them a better option for investors who want higher returns but don’t want too much risk in their portfolios.
The world of high-yield bonds such as fallen angel bonds is complex and requires a lot of research to make the right investment decision. The best way to evaluate these investments is to look at what the company creating them has done in the past, which in this case was creating a lot of debt for companies that were already heavily indebted or not making enough money.
Fallen angel bonds provide investors with an opportunity to make higher returns but also take on more risk than typical corporate bonds. You must understand the kind of investor you are before investing in these types of securities because they aren't for everyone. If you're looking for a platform that allows you to invest in a variety of investment opportunities meant for all types of investors, open a Demat account with IIFL today! Enjoy expert guided advice, real-time market updates and the best hot stock picks for you!
Frequently Asked Questions Expand All
A junk bond is a high-yield bond that many investors like to invest in because they offer a higher rate of return. The term “junk bond” has nothing to do with the quality or value of these securities. It's just another term for investment in high-yield debt.
Many people will tell you that junk bonds are mostly issued by companies that are in financial distress and have a high likelihood of defaulting on their debt (i.e., going bankrupt). This makes them a risky investment because if the company does go under, there's no guarantee that your money will be repaid after all!
A fallen angel is a bond with the same low rating as an original-issue high-yield bond. However, unlike the original-issue high-yield bond, the fallen angel once had a higher bond rating before it was downgraded.