Virus Sell-Off Turns Bonds Into ‘Fallen Angels.’ Here’s Why Downgrades Matter

Being a fallen angel is not a good thing, whether in the Bible or the bond market. For investors, a fallen angel is a company that has been downgraded and lost its investment-grade debt ratings -- a fall that can have costly consequences. Downgrades of just that kind have been pouring down on the bond market like cold March rain since pandemic-driven lockdowns triggered a global sell-off. The downgrades turned more than $92 billion of bonds into fallen angels in March alone, with more threatening to follows. But for some of those companies, the blow may be cushioned by an unprecedented move by the U.S. Federal Reserve.

Companies are facing a near unprecedented rate of downgrades as the coronavirus pandemic, paired with the worst oil rout in decades, threatens their supply chains, consumer demand or both. More than $92 billion of debt fell to high yield from investment grade in March between 11 different companies, according to research firm CreditSights. Most credit strategists see twice as much damage ahead, or more. Here are their forecasts that include the remainder of the year: