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Anfield Fixed Income Update: May 2021

What is a ‘Fallen Angel’?

In Fixed Income, a Fallen Angel refers to a bond that was initially given an investment-grade rating but has since been reduced to high-yield (or junk bond) status. This downgrade is often caused by a deterioration in the financial condition of the issuer, or a broad deterioration in credit access or liquidity.

The downgrade process usually begins with the company’s debt being placed on a negative credit watch by one of the various rating agencies. This indicates the agency is pessimistic about the outlook for the issue or company as a whole. Once the credit receives the actual downgrade, it has “fallen” from the coveted investment-grade distinction and landed in the world of high-yield debt.

Why Does This Matter?

The actual downgrade from investment grade to high yield drives selling pressure, particularly from funds which are restricted to holding investment-grade debt exclusively. As a result of this, fallen angel bonds can present value within the high-yield category, but only if the issuer appears to have a reasonable chance of recovering from the conditions that caused the downgrade. Ultimately, through our intensive credit research we make an effort to determine whether those new opportunities are prudent to add and could benefit the strategies overall.

This is all particularly important given the last year and all the market turmoil that came with it. Throughout the outbreak of COVID and the resulting economic crises, a record number of issuers joined the fallen angel class as their liquidity and credit profiles were adversely affected from economic lockdowns, restrictions, and drastic changes in consumer behavior. However, as the effects of the COVID-19 pandemic and economic lockdowns are presumably temporary, this fallen angel bucket has received an increasing amount of investor attention, particularly as global yields and rates have remained at or near historical lows.

Where Are we Now?

Previous predictions from credit analysts put the amount of “fallen angel” in the range of $300 - $400bn for the next 12 to 24 months. However, as the impact of Fed actions on issuer’s liquidity positions and the reluctance of rating agencies to downgrade highly levered low-BBB issuers continue to show resilience, it is becoming clear this was a pessimistic and no longer realistic prediction.

As CreditSights put it, “The speed of the transition from dire predictions of fallen angel debt to anticipation of the next wave of rising stars has been breathtaking.” After having seen only $860mn of US investment grade fallen angel debt so far this year, and zero across Europe investment grade, the estimate for fallen angel debt now lies “well below $100 bn between now and the end of 2022.”

To recap, US investment grade fallen angel debt peaked in December 2020 at $260bn, driven largely by the energy sector, with volume heavily concentrated by issuer as just four issuers (Pemex, Ford, Occidental, and Kraft Heinz) accounted for almost 60% of 2020’s total. From May to December 2020, monthly US investment grade fallen angel volume averaged just $9bn, as rating agencies slowed to allow time for BBB corporates most impacted by the economic slowdown to improve liquidity and leverage. In a stark contrast to this period 1 year ago, the first four months of 2021 saw just one fallen angel from the energy sector, with $860mn of senior debt moving into the US high yield index.

Source: CreditSights

Current Fixed Income Positioning


Sources: Morningstar, Bloomberg, Manager as of April 30, 2021

Universal Fixed Income Strategies: Benchmark agnostic and line-item bond security portfolios looking to highlight our best ideas in bond space.

Dynamic Bond strategy: Benchmark aware to the Bloomberg Barclay’s Aggregate Index and is a top-down macro-focused ETF of ETFs.



"Anfield Affection Gauges:"

What fixed income sectors & exposures do we like, and what do we dislike?


Long Duration Gov't Bonds LQC Mortgages Structured Products/CLO's HQC

Non-US FI LQC Gov't Bonds Mortgages HQC

LQC = Lower Quality Credit HQC = Higher Quality Credit


Current Fixed Income Positioning Definitions:

  • Duration represents the current value for each of the funds and indices noted

  • Curve represents where each of the funds and indices are positioned on the yield curve

  • Government represents the percentage allocated to Government bonds within the funds and indices

  • Credit represents the percentage allocated to Investment Grade and High Yield Credit within the funds and indices

  • MBS represents the percentage allocated to Mortgage-Backed Securities within the funds and indices

  • Yield (YTM) represents the Yield to Maturity of the funds and indices

Anfield Capital Management, LLC is a registered investment adviser with the SEC. This report is for informational purposes only and does not constitute advice, an offer to sell, or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. The contents of this report should not be relied upon in making investment decisions. The information and statistical data contained herein have been obtained from sources that we believe to be reliable but in no way are warranted by us as to accuracy or completeness. The accompanying performance statistics are based upon historical performance and are not indicative of future performance. The types of investments discussed do not represent all the securities purchased, sold, or recommended for clients. You should not assume that investments in the securities or models identified and discussed were or will be profitable. Results of the models do not reflect the performance result of any one client. Not all clients have experienced this specific return level. Actual client returns may differ materially from the performance of the models due to actual fees incurred by clients, timing of cash flows, or client restrictions (e.g., restrictions on specific securities, industries, or types of securities). Clients who invested in the models after our initial trade date for any security may have experienced materially different performance and may have lost money.

While many of the thoughts expressed in this report are stated in a factual manner, the discussion reflects only Anfield Capital’s beliefs about the financial markets in which it invests portfolio assets following the models. The descriptions herein, are in summary form, are incomplete and do not include all the information necessary to evaluate an investment in any model. The models described represents current intentions. However, Anfield Capital may pursue any objectives, employ any techniques, or purchase any type of financial investment that it considers appropriate for the models and in the best interests of its clients.

Any prior investment results or returns are presented for illustrative purposes only and are not indicative of future returns. An investment in the models presented herein involves a high degree of risk and could result in the loss of your entire investment. Investments with Anfield are subject to significant risks, which include, but are not limited to, the risk of loss of principal, lack of diversification, volatility, and market disruptions. Prospective investors are referred to our Form ADV 2A for a more detailed discussion of risk factors, which can be (a) found on the SEC's Investment Adviser Public Disclosure website at:, or (b) provided upon request. You should not construe the contents of this report as legal, tax, investment, or other advice. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein by Anfield Capital, its employees and no liability is accepted by such persons for the accuracy of completeness of any such information or opinions. Registration as an investment adviser does not imply a certain level of skill or training and no inference to the contrary should be made.

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