Fallen angel
Definition · Level 8 · Rates, FX & macro
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A bond downgraded from investment grade to high yield. Funds that may hold only investment grade are forced to sell, so the price falls and the spread widens, often before the downgrade itself.
Example
BBB− to BB+: the bond is a fallen angel, and funds limited to investment grade must sell.
Where Tradecraft teaches it
Level 8 · Rates, FX & macro, in the lesson “Treasuries, credit and ratings”: The US Treasury menu, bond credit spreads, ratings, the investment-grade line and default.
Related terms
- Bills, notes, bondsThe US Treasury maturity buckets: up to 1 year (zero-coupon, sold at a discount), 2–10 years, and 20–30 years (both with semiannual coupons).
- Bond credit spreadExtra yield a corporate or other risky bond pays over a Treasury of similar maturity, quoted in basis points: compensation for default and liquidity…
- Corporate bondDebt issued by a company. It yields a spread over the government bond of similar maturity to pay for default and liquidity risk, and is split by…
- Credit ratingA letter grade from S&P, Moody’s or Fitch on an issuer’s ability to repay: AAA/Aaa at the top, BBB−/Baa3 the lowest investment grade, BB+/Ba1 and…
- DefaultFailure to pay interest or principal on time, or another breach of a bond’s terms.
- High yieldBonds rated BB+/Ba1 or lower, a.k.a. junk: more default risk, bigger coupons, wider spreads, and much more equity-like behavior in sell-offs.